The  issue deals with a clause pertaining to “enforcement of force majeure clause in the contract relating to import of cotton”. The contents of the circular are reproduced below for your kind perusal and further necessary action.

“Many of the member mills might have entered into an agreement to import cotton with the foreign parties and currently would be facing problem to honour the contract in the wake of COVID-19 Pandemic across the globe and in India. We also understand that many of our members have already registered themselves with the Sellers and settled the issue.

In this connection, a query has been made whether force majeure clause could be used to terminate the contract. It may be noted that the terms and conditions for imported cotton are framed based on the International Cotton Association (ICA) Rules & Regulations by way of bylaws. As per the clarification given by ICA, there are no provisions in the Rules which recognize force majeure. ICA, bylaw 201 and Rules 237 and 238 define the method for resolving the contracts that will not be performed. In a reply to Bangladesh Textile Manufacturers Association, ICA has advised to the Buyer and Seller to negotiate and find amicable a settlement and thereby avoid disputes, arbitration and defaults (reply copy attached).

Any imported cotton litigation by way of arbitration can be made only before the Liverpool Court. Therefore, the buyer has to agitate the issue only before the Liverpool Court and thereafter, the same could be agitated in the local Court. It may be noted that the Department of Expenditure, Government of India has issued an Office Memorandum on 19th February 2020 stating that the present COVID-19 is a natural calamity and force majeure clause may be invoked. Therefore, there is a fair chance for the buyer to win the case by applying the force majeure clause when it is agitated in the Indian Court. This can be done only after completing arbitration process at the Liverpool Court and we understand that the Liverpool Court mostly favours the Seller. Considering the time and expenditure involved, it is advisable to negotiate and settle the contract amicably with the Seller.

In this regard, the legal experts are of the opinion that the enforcement of force majeure clause could be agitated in the Indian Courts when the Arbitration Award passed at the Liverpool Court is implemented in India.”