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Subject: Governance

Important aspects of Society

  • The Urban Learning Internship Program (TULIP)

    The govt. has launched the TULIP program for providing internship opportunities to fresh Graduates in all ULBs & Smart Cities.

    Possible prelims question:

    Q. The TULIP program recently seen in news is related to: HRD/Floriculture/Urban Livelihood etc.

    TULIP

    • TULIP is a portal jointly developed by the Ministry of HRD, Ministry of Housing & Urban Affairs, and All India Council for Technical Education (AICTE).
    • It will help reap the benefits of India’s demographic dividend as it is poised to have the largest working-age population in the world in the coming years.
    • It would help enhance the value-to-market of India’s graduates and help create a potential talent pool in diverse fields like urban planning, transport engineering, environment, municipal finance etc.
    • It will further the Government’s endeavours to boost community partnership and government- academia-industry-civil society linkages.
    • This launch is also an important stepping stone for the fulfillment of MHRD and AICTE’s goal of 1 crore successful internships by the year 2025.

    Why need such a program?

    • India has a substantial pool of technical graduates for whom exposure to real-world project implementation and planning is essential for professional development.
    • General education may not reflect the depth of productive knowledge present in society.
    • Instead of approaching education as ‘doing by learning,’ our societies need to reimagine education as ‘learning by doing.’

  • PM Swanidhi Scheme for street vendors

    The Ministry of Housing and Urban Affairs has launched a micro-credit facility for street vendors under the Swanidhi Scheme.

    Try this question from CSP 2016:

    Q.Rashtriya Garima Abhiyaan’ is a national campaign to

    (a) rehabilitate the homeless and destitute persons and provide then with suitable sources of livelihood

    (b) release the sex workers from the practice and provide them with alternative sources of livelihood

    (c) eradicate the practice of manual scavenging and rehabilitate the manual scavenger

    (d) release the bonded labourers free their bondage and rehabilitate them

    PM Swanidhi Scheme

    • The Pradhan Mantri Street Vendor’s Atmanirbhar Nidhi Scheme is aimed at benefiting over 50 lakh vendors who had their businesses operational on or before March 24.
    • The scheme was announced by Finance Minister as a part of the economic package for those affected by the COVID-19 pandemic and lockdown.
    • The loans are meant to help kick-start activity for vendors who have been left without any income since the lockdown was implemented on March 25.
    • The scheme is valid until March 2022.

    Expected beneficiaries

    • This loan will be given to those who run shops on the roadside, handcart or streetcar.
    • Fruit-vegetable, laundry, saloon and paan shops are also included in this category.

    Facilities provided under the scheme

    • The vendors will be able to apply for a working capital loan of up to ₹10,000, which is repayable in monthly instalments within a year.
    • On timely/early repayment of the loan, an interest subsidy of 7% per annum will be credited to the bank accounts of beneficiaries through direct benefit transfer on a six-monthly basis.
    • The loans would be without collateral. There will be no penalty on early repayment of the loan.

  • PM-CARES is not a public authority under RTI Act

    The PMO has refused to disclose details on the creation and operation of the PM-CARES Fund, telling a Right to Information applicant that the fund is “not a public authority” under the ambit of the RTI Act, 2005.

    Practice question for mains:

    Q. The PM-CARES fund is an old wine in a new bottle. Discuss its feasibility and how it is different in context to the PMNRF.

    About PM-CARES Fund

    • The fund will be a public charitable trust under the name of ‘Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’.
    • The PM is Chairman of this trust and members include the Defence Minister, Home Minister and Finance Minister.
    • Contributions to the fund will qualify as corporate social responsibility (CSR) spending that companies are mandated to make.
    • The Fund accepts micro-donations as well.

    Not a public authority

    • The PMO cited a Supreme Court observation that indiscriminate and impractical demands under RTI Act for disclosure of all and sundry information would be counterproductive.
    • PM-CARES Fund is not a Public Authority under the ambit of Section 2(h) of the RTI Act, 2005.
    • However, relevant information in respect of PM-CARES Fund may be seen on its website.

    Then, what makes an authority, Public?

    The relevant section of the RTI Act defines a “public authority” as “any authority or body or institution of self-government established or constituted —

    • by or under the Constitution;
    • by any other law made by Parliament;
    • by any other law made by State Legislature;
    • by the notification issued or order made by the appropriate Government — and includes any (i) body owned, controlled or substantially financed; (ii) NGO substantially financed, directly or indirectly by funds provided by the appropriate govt.

    Arguments against PM-CARES

    • The fund carries a public name, the composition of the trust, control, usage of an emblem, government domain name etc. that signifies it as a public authority.
    • PM is the ex-officio chairman of the Trust, while three cabinet ministers are ex-officio trustees.
    • The composition of the trust is enough to show that Government exercises substantive control over the trust, making it a public authority.

  • What is the National Numbering Plan?

    The Telecom Regulatory Authority of India (TRAI) has recommended that a new National Numbering Plan be issued at the earliest so that a uniquely identifiable number can be provided to every subscriber in India.

    The TRAI and Telecom Disputes Settlement and Appellate Tribunal are quite often seen in the news.  Most recent was the dispute risen due to AGR dues.

    TRAI has a wide range of jurisdiction over Telecoms. Keep a track on all such news.

    National Numbering Plan

    • The management of numbering resources is governed by the National Numbering Plan.
    • The Department of Telecom administers the numbers for fixed and the mobile networks based on the ITU’s Telecommunication Standardization Sector (ITU-T) recommendations.
    • TRAI has recommended automated allocation of numbering resources be done using number management system software to speed up the process

    Broadly, the TRAI has recommended:

    • switching to an 11-digit mobile number,
    • reallocation of mobile numbering resources surrendered by operators who have shut shop and
    • prefixing zero for all mobile calls made from fixed line

    Issues with 11 digit number

    • TRAI said that some serious problems are anticipated with a change in the mobile number from 10 to 11 digits.
    • Migrating to 11 digits would require widespread modifications in the configuration of switches involving cost.
    • This would also cause inconvenience to the customers in the form of dialling extra digits and updating phone memory.
    • This could lead to more dialling errors, traffic, and loss of revenue to telecom operators.

    Still, why need a plan as such?

    • The total number of telephone subscribers in India stands at 1,177.02 million with a teledensity of 87.45% at the end of January 2020.
    • This increasing digitization would pave the way towards the dream of digital India and mobile economy.
    • Thus, it has become necessary to review the utilization of numbering resources in the country.
    • Considering the above scenario the implementation of the TRAI’s recommendation with solutions to possible issues would help for sustainable growth of the telecommunication services.
    • Hence TRAI needs to review the utilization of the numbering resources and make some policy decisions to ensure that adequate resources are available for sustainable growth of the telecom services.

    Back2Basics: Telecom Regulatory Authority of India (TRAI)

    • The TRAI is a statutory body set up under section 3 of the Telecom Regulatory Authority of India Act, 1997.
    • It is the regulator of the telecommunications and its tariffs in India.
    • The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecom Disputes Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI.
    • TRAI regularly issues orders and directions on various subjects such as tariffs, interconnections, quality of service, DTH services and mobile number portability.

  • Three thresholds in Industrial Disputes Act that need revision

    Sometimes the measures we come up with end up doing exactly the opposite of what they were supposed to do. This might be the case with some provisions in the Industrial Dispute Act. This article deals with 3 such provisions in the IDA. So, what are these provisions? How the issues caused by these provisions could be resolved? Read to know more…

    How provisions of IDA could be detrimental?

    • What made so many migrants suddenly long for their village after lockdown?
    • The answer lies in our Industrial Disputes Act (IDA), the motherboard of our labour laws.
    • IDA has encouraged short-term employment, low skills and zero security.
    • It did this by setting up thresholds which disincentivised long-term commitment of workers to entrepreneurs and vice versa.
    • It also kept firms informal and unwilling to invest in human capital.
    • This is why when the lockdown happened, it turned into a migrant crisis.

    Let’s look at  3 thresholds in IDA that are causing harm

    • 1) Hire more than 99 workers, and you will have to notify the government before you can fire any one of them.
    • 2) Hire more than 20 and you open yourself up to provident fund commitments and bonus payments.
    • 3) If you want to deny workers severance pay, never keep them continuously employed for more than 240 days.

    So, how IDA ends up discouraging formalisation?

    • Given these provisions in the IDA, entrepreneurs are reluctant to hire more than 99 workers for over 240 days.
    • The employers are naturally tempted to observe these thresholds and duck under the radar.
    • This is made easier by the fact that these thresholds mesh well with the fear that the middle-class — and upwards — have of a working-class takeover.
    • As a result, these thresholds have only encouraged the informal sector, where both unregistered labour and unregistered entrepreneurs dominate.
    • It has led to the proliferation of informal enterprises and low-skill workers.
    • In the first 15 years of this century itself, over half the increase in total employment has been that of contract workers.
    • This has also led to a phenomenal rise in MSMEs as the IDA has discouraged entrepreneurs from harbouring any ambitions to grow big and formal.
    • The MSMEs have, consequently, increased in number from 3.6 crore units in 2012 to about 6 crore today.
    • Since there are constraints on both the workforce size and duration of employment, upskilling and R&D naturally become early casualties.
    • India spends only 0.7 per cent of its GDP in R&D, one of the lowest in the world, while South Korea spends 4.2 per cent.

    Contribution of MSME in GDP is not increasing

    • Over 94 per cent of MSMEs are in the Micro sector and their contribution to GDP is just not measuring up.
    • In 2012, MSMEs produced 37.54 per cent of our GDP.
    • But this number fell to 30.7 per cent in 2015, and in 2019 it decreased further to 29.7 per cent, though they are still working full throttle.
    • Yet, the lure to stay on the good side of the IDA thresholds is so compelling that even formal units are today outsourcing from the informal ones.
    • Over time, the IDA has succeeded in converting a large number of organised sector companies into strange, hybrid economic creatures, both fishy and foul.

    But, how removal of the 3 thresholds will change the situation?

    • If the 3 mentioned thresholds are removed, every worker — regardless of factory size — is entitled to the same rights.
    • Likewise, every employer, regardless of factory size, can hire and fire workers.
    • There is greater freedom on both sides, but this freedom comes with a price that does not discourage either size or skills in an enterprise.
    • The worker can now be fired without notifying the government, but must be compensated with severance wages, regardless of the size of the firm.
    • Also, unlike the IDA, all the firms must have a formal dispute resolution board.
    • Now that the enterprises have been freed of the size threshold, entrepreneurs get no advantage in dwarfing their firms.
    • Other reforms can soon follow, such as allowing for workers’ representation in a firm’s supervisory board, as it happens in Germany.
    • Measures such as these create trust between employees and employers, and also remove the threatening spectre of a working-class strike.

    Consider the question “Various provision of the Industrial Disputes Act which were enacted but with a different purpose now seems to place both the workers and employers in a disadvantageous position. In light of this statement, examine the issues with the threshold limits of the number of employees and number of employment days in the Industrial Disputes Act.”

    Conclusion

    In the ultimate analysis, the IDA does not produce winners, only losers. The workers remain skill-stunted and insecure, and the entrepreneurs, too, pull back from releasing their much-vaunted “animal spirits”. So, the IDA thresholds must go and not be merely fiddled with, as some states have done.

    Back2Basics: Industrial Disputes Act 1947

    • The main purpose of the Industrial Disputes Act, 1947 is to ensure fair terms between employers and employees, workmen and workmen as well as workmen and employers.T
    • The objective of the Industrial Disputes Act is to secure industrial peace and harmony by providing machinery and procedure for the investigation and settlement of industrial disputes by negotiations.

  • How would Direct Benefit Transfer (DBT) of power subsidy work?

    Context

    • Punjab has been providing free power to the agriculture sector.
    • The new Electricity Amendment Bill 2020 has proposed providing subsidy on power to farmers through DBT, which is contrary to the prevailing ‘free power’ system in Punjab.

    Free or subsidised power is being provided to millions of consumers in almost every state. Punjab is no exception but its free power scheme is. Other states can learn from the example of Punjab, here.

    Practice questions for mains:

    Q. Discuss the efficacy of Direct Benefit Transfer in power subsidy for farmers.

    Punjab on knees

    • Before it submits suggestions regarding the Electricity Amendment Bill 2020, recently drafted by the Union Power Ministry to amend the Electricity Act 2003, a big challenge lies ahead for the Punjab government.
    • Under the garb of DBT, it is a move to stop the free power supply to them.

    What is the current system of power subsidy for farmers in Punjab?

    • At present, Punjab is supplying free power to 14.16 lakh electricity-run tubewells of the agriculture sector which are getting power through 5,900 Agricultural Pumpset Feeders (APFs).
    • These APFs are metered and the Punjab Power Corporation charges the state government for consumed units recorded in metered APFs.

    The Free Power Scheme

    • Farmers are getting power supply for their Kharif and Rabi crops from these feeders as per the recommendations of the Punjab Agriculture University (PAU), Ludhiana.
    • It is supplied for around eight hours every day in Kharif season and four hours on alternate days during Rabi crop season.
    • The state government pays around Rs 6,000 crore power subsidy bill to Power Corporation every year under the scheme to the farming sector.

    What would change under the DBT allowed under the new Electricity Bill 2020?

    • Under DBT, farmers will have to pay the bill for the power consumed for agriculture purposes.
    • After that, they will get the subsidy in their bank accounts through DBT.
    • A meter would be installed on every individual tubewell.

    Issues with Punjab farmer

    • Approximately the annual power bill will come to around Rs 46,000 to Rs 48,000, and farmers are required to pay a bill of Rs 4,000 per month.
    • In Punjab, 67 per cent of farmers come under the small and marginal categories with 1-2 hectares land.
    • Paying bills in advance is not possible for them due to debt.
    • If farmers don’t pay their bills, the department will disconnect their connection, which could lead to farmers’ agitation.

    Can it work like DBT on LPG gas cylinders?

    • The bill suggests the subsidy be paid directly to consumers in cash on the pattern of LPG subsidy.
    • This proposal should be tried in a pilot project and if results are encouraging, only then it should be included in the amendment bill.
    • It is not feasible to provide meters on every pump set up across the country and then give cash subsidy every month after the consumer has paid the bill.

    Punjab government’s own DBT scheme titled ‘Paani Bachao Paisa Kamao’ is also working here. How it is different from DBT under the new Bill?

    • The Punjab government’s scheme is a voluntary one.
    • The farmers who have adopted it need to get install a power meter on their tubewell but are not required to pay any power bill.
    • The main purpose of PBPK is to save groundwater by using it judiciously because, under the traditional system, several farmers are misusing the water by over-irrigating the crops due to free power available to them.

    What do farmers’ organisations think of this?

    • Farmers’ organisations say that if the Punjab government agrees to this bill, they will fight it tooth and nail.
    • From where will poor farmers pay such heavy bills when they get an income after six months following the sale of their crop, they ask.
    • Anywhere in the world, the agrarian sector cannot run without the support of the government as it is the base of every human being who is dependent on farmers’ produce from his/her morning tea to dinner.

    Back2Basics

    [pib] Draft Electricity Act (Amendment) Bill, 2020

  • Delimitation Commission for NE states and UTs

    Lok Sabha speaker has nominated 15 MPs to assist the Delimitation Commission in redrawing the Lok Sabha and the Assembly constituencies of the northeastern states and the Union Territories.

    Practice question for mains:

    Q. What is the Delimitation of Constituencies? Discuss its significance.

    What is Delimitation? Why is it needed?

    • Delimitation is the act of redrawing boundaries of Lok Sabha and state Assembly seats to represent changes in population.
    • In this process, the number of seats allocated to different states in Lok Sabha and the total number seats in a Legislative Assembly may also change.
    • The main objective of delimitation is to provide equal representation to equal segments of a population.
    • It also aims at a fair division of geographical areas so that one political party doesn’t have an advantage over others in an election.

    Legal status

    • Delimitation is carried out by an independent Delimitation Commission (DC).
    • The Constitution mandates that its orders are final and cannot be questioned before any court as it would hold up an election indefinitely.

    How is delimitation carried out?

    • Under Article 82, the Parliament enacts a Delimitation Act after every Census.
    • Once the Act is in force, the Union government sets up a DC made up of a retired Supreme Court judge, the Chief Election Commissioner and the respective State Election Commissioners.
    • The Commission is supposed to determine the number and boundaries of constituencies in a way that the population of all seats, so far as practicable, is the same.
    • The Commission is also tasked with identifying seats reserved for Scheduled Castes and Scheduled Tribes; these are where their population is relatively large.
    • All this is done on the basis of the latest Census and, in case of difference of opinion among members of the Commission, the opinion of the majority prevails.

    Implementation

    • The draft proposals of the DC are published in the Gazette of India, official gazettes of the states concerned and at least two vernacular papers for public feedback.
    • The Commission also holds public sittings.
    • After hearing the public, it considers objections and suggestions, received in writing or orally during public sittings, and carries out changes, if any, in the draft proposal.
    • The final order is published in the Gazette of India and the State Gazette and comes into force on a date specified by the President.

    How often has delimitation been done in the past?

    • The first delimitation exercise in 1950-51 was carried out by the President (with the help of the Election Commission).
    • The Constitution at that time was silent on who should undertake the division of states into Lok Sabha seats.
    • This delimitation was temporary as the Constitution mandated redrawing of boundaries after every Census. Hence, delimitation was due after the 1951 Census.

    Why more independence to DC?

    • Pointing out that the first delimitation had left many political parties and individuals unhappy, the EC advised the government that all future exercises should be carried out by an independent commission.
    • This suggestion was accepted and the DC Act was enacted in 1952.
    • DCs’ has been set up four times — 1952, 1963, 1973 and 2002 under the Acts of 1952, 1962, 1972 and 2002.
    • There was no delimitation after the 1981 and 1991 Censuses.

    Why postponed till 2026?

    • Although the freeze on the number of seats in Lok Sabha and Assemblies should have been lifted after the 2001 Census, another amendment postponed this until 2026.
    • This was justified on the ground that a uniform population growth rate would be achieved throughout the country by 2026.
    • So, the last delimitation exercise — started in July 2002 and completed on May 31, 2008 — was based on the 2001 Census and only readjusted boundaries of existing Lok Sabha and Assembly seats and reworked the number of reserved seats.

    Back2Basics: History of Delimitation in J&K

    • Delimitation of J&K’s Lok Sabha seats is governed by the Indian Constitution, but the delimitation of its Assembly seats (until special status was abrogated recently) was governed separately by its Constitution and J&K Representation of the People Act, 1957.
    • As far as the delimitation of Lok Sabha seats is concerned, the last DC of 2002 was not entrusted with this task. Hence, J&K parliamentary seats remain as delimited on the basis of the 1971 Census.
    • As for Assembly seats, although the delimitation provisions of the J&K Constitution and the J&K RP Act, 1957, are similar to those of the Indian Constitution and Delimitation Acts.
    • They mandate a separate DC for J&K. In actual practice, the same central DC set up for other states was adopted by J&K in 1963 and 1973.
    • While the amendment of 1976 to the Indian Constitution suspended delimitation in the rest of the country till 2001, no corresponding amendment was made to the J&K Constitution.
    • Hence, unlike the rest of the country, the Assembly seats of J&K were delimited based on the 1981 Census, which formed the basis of the state elections in 1996.
    • There was no census in the state in 1991 and no DC was set up by the state government after the 2001 Census as the J&K Assembly passed a law putting a freeze on fresh delimitation until 2026.

  • ‘Rozgar Setu’ Scheme for skilled workers

    The Madhya Pradesh has announced the launch of the ‘Rozgar Setu’ Scheme to help secure employment for skilled workers who have returned.

    State schemes are quite often seen in the news. They are very important from the prelims perspective:

    Rytha Bandu (Telangana): Cash transfer scheme of Rs 5,000/acre, per season

    KALIA (Krushak Assistance for Livelihood and Income Augmentation) Scheme (Odisha)

    Mukhya Mantri Krishi Aashirwad Yojana (Jharkhand)

    Krishak Bandhu Scheme (West Bengal)

    ‘Rozgar Setu’ Scheme

    • The ‘Rozgar Setu’ scheme to provide work to the maximum number of returned skilled workers.
    • After such workers requiring employment are identified, the government will contact factory and workshop owners and contractors overseeing infrastructure projects such as road and bridge construction.
    • This would fulfil the manpower requirement of industries as well as provide employment to workers during the COVID-19 pandemic.

  • [pib] Instant PAN through Aadhaar based e-KYC

    The Union Finance Ministry has launched the facility for instant allotment of (Permanent Account Number) PAN.

    Try this question from CSP 2018:

    Q.) Consider the following gatemen.

    1. Aadhaar card can be used as a proof of citizenship or domicile.

    2. Once issued, the Aadhaar number cannot be deactivated or omitted by the Issuing Authority.

    Which of the statements given above is/are correct?

    (a) 1 only

    (b) 2 only

    (c) Both 1 and 2

    (d) Neither 1 nor 2

    Can’t you expect a similar question based on PAN card? If not , go through this newscard.

    What is a Permanent Account Number?

    • A PAN is a ten-character alphanumeric identifier, issued in the form of a laminated “PAN card”, by the Income Tax Department.
    • It is issued to any “person” who applies for it or to whom the department allots the number without an application.
    • A PAN is a unique identifier issued to all judicial entities identifiable under the Indian Income Tax Act, 1961.
    • The income tax PAN and its linked card are issued under Section 139A of the Income Tax Act.
    • It is issued by the Indian Department under the supervision of the Central Board for Direct Taxes (CBDT) and it also serves as an important proof of identification.
    • It is also issued to foreign nationals (such as investors) subject to a valid visa, and hence a PAN card is not acceptable as proof of Indian citizenship.

    Uses of PAN

    • The primary purpose of the PAN is to bring a universal identification to all financial transactions and to prevent tax evasion by keeping track of monetary transactions.
    • The PAN is mandatory when filing income tax returns, tax deduction at source, or any other communication with the IT Department.
    • PAN is also steadily becoming a mandatory document for opening a new bank account, a new landline telephone connection / a mobile phone connection, purchase of foreign currency, bank deposits above ₹50,000, purchase and sale of immovable properties, vehicles etc.

    Why it is in the news?

    • A PAN is necessary for filing income tax returns.
    • This facility is now available for those PAN applicants who possess a valid Aadhaar number and have a mobile number registered with Aadhaar.
    • The allotment process is paperless and an electronic PAN (e-PAN) is issued to the applicants free of cost.

  • What is the doctrine of Force Majeure?

    The recent spread of the Coronavirus has triggered a global slowdown and has rendered ongoing business operations of several organisations to almost a standstill. This has resorted them to invoking the ‘force majeure’ clause to seek some relief.

    Practice question for mains:

    Q) What is the doctrine of Force Majeure and Frustration of a Contract? Discuss how it can worsen the NPA crisis in India.

    What is Force Majeure?

    • Force majeure is purely a contractual remedy available to an affected party under a contract and for seeking relief, the reference would be to the express terms of the contract.
    • It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.
    • While force majeure has neither been defined nor specifically dealt with, in Indian statutes, some reference can be found in Section 32 of the Indian Contract Act, 1872 (the “Contract Act”).
    • It envisages that if a contract is contingent on the happening of an event which event becomes impossible, then the contract becomes void.

    Where are such clauses found?

    • Force majeure clauses can usually be found in various contracts such as power purchase agreements, supply contracts, manufacturing contracts, distribution agreements, project finance agreements, agreements between real estate developers and home buyers, etc.

    Circumstances qualified for force majeure

    • A force majeure clause typically spells out specific circumstances or events, which would qualify as force majeure events, conditions which would have be fulfilled for such clause to apply.
    • As such, for a force majeure clause to become applicable the occurrence of such events should be beyond the control of the parties.
    • The parties will be required to demonstrate that they have made attempts to mitigate the impact of such force majeure event.
    • If an event or circumstance qualifies, the consequence would be that parties would be relieved from performing their respective obligations to be undertaken by them under the contract.

    Why it is in news, now?

    • Due to the lockdown restrictions placed by the government, the parties’ ability to perform and fulfil their contractual obligations is affected.
    • Where the contract does not specifically cover the current situation is a matter of debate.
    • The Indian Contract Act, 1872 is more than a century old and does not have any specific provisions relating to suspension of contracts or termination of contracts in cases of a pandemic.
    • The Act clearly provides that an agreement to do an act impossible in itself is void (Section 56).
    • After a contract is made, if any act becomes impossible or unlawful by reason of some event, such a contract becomes void.

    What is the difference between force majeure and frustration of a contract?

    • Under the doctrine of frustration, the impossibility of a party to perform its obligations under a contract is linked to the occurrence of an event/circumstance subsequent to the execution of a contract and which was not contemplated at the time of execution of the contract.
    • However, under in case of a force majeure, parties typically identify, prior to the execution of a contract, an exhaustive list of events, which would attract the applicability of the force majeure clause.
    • The doctrine of Frustration renders the contract void and consequently, all contractual obligations of the parties cease to exist.

    What did the Supreme Court say?

    • Recently, the Supreme Court observed that the doctrine of frustration as enumerated in the Act would apply only where the parties have not specified the consequences of an event which renders the performance of the contract impossible.
    • Termination of a frustrated contract would be possible only in cases where the contract becomes impossible to perform which means the damage to the contract should be of permanent nature and not something which can be performed with the passage of time.
    • Hence a temporary inability or force majeure event would not qualify under the doctrine.

    What lies ahead?

    • The force majeure clause in contracts should not be misconstrued as an event of frustration covered under the Act.
    • Force majeure is purely a contractual remedy available to an affected party under a contract and for seeking relief; the reference would be to the express terms of the contract.
    • However, a party claiming frustration of contract and seeking to escape liability or other obligation under a contract will necessarily have to approach an appropriate judicial forum.
    • It is likely that ‘force majeure’ clauses in contracts need to be more heavily negotiated to include references to epidemics or pandemics, in addition to other situations.