Invocation of force majeure in insolvencies

The doctrine of frustration envisaged in section 56 of the Indian Contract Act, 1872, was recently applied by the National Company Law Tribunal (NCLT) in the case of Suraksha Asset Reconstruction Ltd & Ors vs Shailen Shah RP for Wind World (India) Ltd & Anr to permit the resolution applicant to withdraw a committee of creditors (COC) approved resolution plan. While the withdrawal of resolution plans in the past have been approved by the courts due to misleading, unreliable or incomplete information in the memorandum prepared by a resolution professional – as seen in the corporate insolvency resolution process (CIRP) of Metalyst Forging – a withdrawal of a resolution plan on account of a force majeure event may have been a first.

The doctrine of frustration laid down in section 56 permits parties to a contract to be excused from performing their obligations under a contract by reason of it becoming impossible or illegal after execution. Ordinarily a resolution plan does not have any force majeure clauses, but in the case of Amtek Auto, the COC had permitted the resolution applicant, Deccan Value Investors, to include the same, as by January 2020 early signs of covid-19 were visible.