As tensions escalate along the India-Pakistan border, businesses in energy,petrochemicals, hydrogen, and infrastructure face significant legal, regulatory, and operational challenges. While direct combat may not disrupt domestic operations, indirect effects like supply chain shocks, port restrictions, and regulatory changes threaten contractual stability. This brief examines two critical legal doctrines: Force Majeure and Change in Law and their implications for procurement, sales, and project execution contracts, offering practical steps to mitigate risks.

1. Force Majeure: Read the Fine Print

a) Legal Implications

Force majeure (FM) clauses excuse parties from performing contractual obligations when extraordinary events beyond their control such as war, hostilities, or government restrictions prevent fulfillment. In the context of India-Pakistan border tensions, FM could be triggered by:

• Armed conflicts or threats of war, including border skirmishes
• Port or route closures due to security measures
• Suspension of trade, diplomatic channels, or cross-border logistics
• Restrictions on foreign workforce, shipping, or financial transactions

Under the Indian Contract Act, 1872, Section 32 voids contingent contracts if performance becomes impossible, while Section 56 voids contracts when unforeseen events render performance illegal or impossible. However, judicial precedent, such as Energy Watchdog v. CERC [(2017) 14 SCC 80], emphasizes that FM clauses must be narrowly interpreted, excluding mere commercial hardship, and contract-specific terms prevail.

b) Key Contractual Risks

Ambiguity in FM Definitions: Many contracts reference “war” or “acts of God” but may not explicitly cover border skirmishes, defense-related sanctions, or export/import bans. For instance, Dhunraj Nathji v. Nilkamal Ltd. (AIR 2021 SC 23) requires explicit inclusion of war-like events for FM relief.

Notification Obligations: Strict notice periods are critical. Failure to notify promptly may invalidate FM claims.

Burden of Proof: Parties must demonstrate a direct causal link between the event (e.g., border closures) and non-performance, supported by robust documentation.

Exclusions: Some contracts exclude FM relief for payment obligations, requiring payments despite performance disruptions.

c) Mitigation Measures

Audit Contracts: Review FM clauses to ensure they explicitly include “acts of war, embargoes, export/import restrictions, and government interventions.” Confirm notice mechanisms and cure periods are clearly defined.

Document Disruptions: Maintain detailed, real-time records of logistics delays, workforce shortages, or cost escalations to substantiate FM claims.

Negotiate Flexibility: Seek FM carve-outs allowing partial performance or temporary suspensions to avoid full contract discharge.

Monitor Precedents: Stay informed of judicial interpretations to strengthen FM claims.

2. Change in Law: Protection Against Regulatory Shocks

a) Legal Implications

Change in Law (CiL) clauses protect parties from unforeseen regulatory changes that increase costs or hinder contract performance. In the current geopolitical climate, CiL clauses may be invoked for:

• New import/export restrictions on fuel, hydrogen, or critical materials
• Closure of transit routes affecting regional supply chains
• Financial sanctions or restrictions on USD-denominated payments
• National security regulations impacting foreign direct investment (FDI) or equipment licensing

CiL clauses in contracts like Power Purchase Agreements (PPAs) or Engineering, Procurement, and Construction (EPC) agreements may allow compensation for cost increases due to new laws, though timeline extensions may require regulatory approval. For example, Adani Power Ltd. v. UPERC [(2019) 5 SCC 325] upheld compensation for regulatory changes affecting coal allocation.

b) Key Contractual Risks

Narrow Definitions: CiL clauses may exclude executive orders, state regulations, or defense related interventions unless explicitly included.

Lack of Pricing Mechanisms: Without clear pass-through or adjustment formulas, parties face margin erosion from cost increases.

Temporal Limitations: Clauses applying only post-execution may not cover retroactive policy changes.

Approval Delays: Regulatory approvals for CiL claims can prolong financial uncertainty.

c) Mitigation Measures

Broaden CiL Definitions: Amend clauses to include executive orders, sanctions, circulars, and defense-related interventions.

Introduce Cost-Sharing: Negotiate automatic cost-sharing mechanisms or renegotiation triggers to address regulatory shocks.

Secure Interim Relief: Include provisions for obligation suspensions or pricing freezes pending regulatory clarity.

Substantiate Claims: Document impacts meticulously to ensure CiL relief eligibility, as seen in cases like Seamec Ltd. v. Oil India Ltd. (Civil Appeal No. 673 of 2012).

3. Recommendations

Contractual Audit: Prioritize review of contracts exposed to cross-border risks or sensitive procurement items (e.g., hydrogen plant components, EPC services). Ensure FM and CiL clauses are robust and aligned with current geopolitical risks.

Rebalance Risk: Renegotiate contracts to strengthen FM and CiL provisions, incorporating war risk and sanction-related protections.

Track Policy Changes: Assign teams to monitor updates from the Ministry of External Affairs (MEA), Ministry of Petroleum and Natural Gas (MoPNG), Ministry of New and Renewable Energy (MNRE), and Ministry of Defence (MoD).

Insurance Backstop: Verify that political risk or war-risk insurance is active and covers disruptions from border escalations.

4. Final Word

Force majeure and change in law clauses are critical for navigating the uncertainties of India-Pakistan border tensions. These provisions are not mere boilerplate but essential tools that determine a company’s ability to enforce, renegotiate, or exit contracts without incurring significant liabilities. At Sidebar, we are partnering with energy and infrastructure clients to audit risks, fortify contractual protections, and ensure commercial resilience in this volatile geopolitical landscape.