The Ministry of Finance on Wednesday said the disruption of supply chain due to the spread of coronavirus in China or any other country would be considered as a case of natural calamity.
The Ministry, in an official memorandum, also stated that a Force Majeure Clause may be invoked in appropriate cases.
A Force Majeure (FM) means extraordinary events or circumstance beyond human control such as an event described as an act of God (as a natural calamity) or events such as a war, strike, riots, crimes (but not including negligence or wrong-doing, predictable/ seasonal rain and any other events specifically excluded in the clause), the ministry said.
An FM clause in the contract frees both parties from contractual liability or obligation when prevented by such events from fulfilling their obligations under the contract, it read.
The development comes after Finance Minister Nirmala Sitharaman held a meeting of Secretaries today to discuss disruption in the supply of raw materials from China in the wake of the coronavirus outbreak.
According to the ministry, a doubt has arisen that if the disruption of the supply chains due to the spread of coronavirus in China or any other country will be covered in the Force Majeure Clause (FMC) or not.
In this regard, the ministry has clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate.
An FM clause does not excuse a party's non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto, it added.
"There may be an FM situation affecting the purchase orgsation only. In such a situation, the purchase orgsation is to communicate with the supplier along similar lines as above for further necessary action. If the performance in whole or in part or any obligation under this contract is prevented or delayed by any reason of FM for a period exceeding 90 days, either party may at its option terminate the contract without any financial repercussion on either side," the ministry said.
On Tuesday, the Finance Minister held a meeting with Industry and other bodies to assess the impact of the deadly virus outbreak and any disruptions posed by it to India's trade.
According to media reports, the virus has so far claimed the lives of more than 2,000 people in mainland China and infected nearly 70,000 people worldwide.
( With inputs from ANI )