COVID 19 and its impact on Indian economy


Posted On : May 1, 2020
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WHAT IS COVID 19?

COVID 19 or Corona Virus disease is an infective disease caused by severe acute respiratory syndrome Coronavirus 2 (SARS-COV-2).

This disease was first identified in Wuhan, capital of China and since then had spread worldwide creating a pandemic situation. There are millions of cases reported and has caused numerous death. The symptoms of Corona virus include fever, dry cough, shortness of breath, fatigue and can even lead to multi organ failure and bluish skin.

This virus is spread when people come in contact, sneeze or talk with each other. People may also get infected by touching a contaminated object and then touching their face. The virus may survive on surface for more than 72 hours. Thereby it is recommended that every individual should frequently wash their hands and should not keep touching their face. People should maintain social distance and should follow that. Also, wearing mask should be made a compulsory habit.

For the time being, there is no vaccine available for the treatment of COVID 19 and thus patients of corona virus are treated with isolation, treatment of symptoms and experimental measures. The World Health Organization (WHO) announced COVID 19 as Public Health Emergency of International Concern (PHEIC) on Jan 30, 2020 and later declared it as a pandemic on Mar 11, 2020.


IMPACT ON INDIAN ECONOMY

In last few months the world has been going through a lot of dramatic changes. Indian is experiencing complete lockdown to avoid the pandemic and this has led to unimaginable loss to the global economy and loss of human live has been unpredictable.

According to the Asian Development Bank it has been estimated that the global economic cost of the virus might cost to $2 to $4 million. According to the damages estimated by the legal firms the damages have gone up to estimate $6.5 trillion. Due to this complete lockdown India is expected to lose $4.5 billion every day.

People with little savings and shelter have somehow managed to live a life. People facing tough challenges are the migrants who do not have a shelter and fails to earn their daily livelihood due to the lockdown. After the extension of lockdown on April 14, the migrants found it difficult to sustain and thus started moving their hometown. Failing to get any public transport, they chose to walk over highway and decided to walk miles. Seeing the drastic situation, government arranged shelters for those people and were provided food and many of them were asked to get back to work. This has really been a tough phase. The pandemic has adverse effects on business sectors, hospitality, real estate, agriculture, shipping, etc. Almost all the sectors have been effected. This can also lead to losing of job to many individuals as firms have decided to reduce the manpower which again will be a big problem in Indian Economy.


COVID 19- BUSINESS AND LEGAL IMPLICATIONS

The impact of Corona Virus disease is severe. Some of the key legal issues have been discussed below which the companies need to pay attention to:-

Supply Chain Disruptions. Performances under many contracts have been found to delayed, cancelled or interrupted due to the coronavirus outbreak. Due to lockdown which has prevented people from going to work can become an excuse for the delay or even cancelling of work. This eventually leads the companies to not able to perform their obligations under their customer agreements. Due to this situation, COVID 19 is considered as ‘Force Majeure’ which means superior force. Force Majeure includes act of god, war like situations, labor unrest or strikes, epidemics, etc. It intends to save the performing party from any unexpected or uncontrollable situation. It will be the court who would examine that whether the impact of COVID 19 prevented the parties from performing their social obligation or not. To an extent Indian Courts have recognized this concept and have enforced it at appropriate places.

In any case if the contract does not have a force majeure clause then the party may resort to the doctrine of frustration as mentioned in Section 56 of Indian Contract Act, 1872. Parties can appeal for other contractual clauses like material adverse change(MAC) clauses, price adjustment clauses, limitation or exclusion clauses, to limit or exclude liability for non-performance.

 

MERGERS AND ACQUISITIONS

 The outbreak of COVID 19 may have adverse effect on Mergers and Acquisitions (M&A) transactions and thus need to be careful about the terms of the transaction documents to quickly deal with the challenges of COVID 19.

  • It may trigger the material adverse changes and needs to be examined. It depends on case by case basis.
  • Sellers should be assured whether they can comply with the pre- competition undertakings.
  • Buyers should request warranties around risk assessment and scenario planning.
  • Sellers must consider some general COVID 19 related exclusion of liability and thus claims can be only made under specific guarantee not general guarantee.
  • Sellers should cautiously consider the need for COVID 19 disclosure and possibly satisfy the requirements for fair disclosure.
  • Sellers should include information in the data room about the impact of the pandemic.
  • If there is any delayed closing, then the parties should consult with their counterparties and manage the situation.
  • The parties can conduct a comprehensive assessment of the effect of the COVID 19 outbreak that can have on representation and warranties.


INSOLVENCY

Due the spread of COVID 19, the companies have experienced financial distress as they try to extenuate the financial impacts of supply chains matters merged with lower customer demand. Companies which were already having high debts are in search of existing credits withdrawn at a time at time of paying suppliers who were actually able to deliver on time and failed to receive customer payment.


CORPORATE GOVERNANCE AND DISCLOSURES

During this pandemic the directors are requested to act in the best interest of the company and should be impartial to every employee

  • The board needs to evaluate the business continuity risk along with the members of the management.
  • Management must keep the board informed about the risks in business as it is the duty of the board to be reasonably informed and must have good faith in supervising the company’s operation.
  • There must be fast action plan in order to deal with the pandemic.
  • There must be constant communication with the customers to keep them updated about the services.
  • It is important for the board to communicate with the shareholders in context to company’s assessment of the impacts of the Corona virus and company’s plan to tackle the situation.
  • By any chance if there is any material effect on the business and due to that there is closure of important manufacturing facility then in that case the needed information should be sent to the stock exchange where the shares of the companies are listed.


WOKPLACE ISSUES

The outbreak of COVID 19 can even create varieties of issues relating to travel, health, safety concerns, sickness, etc. There are some work related issues which the employers should consider.

Employer’s Obligation-: Employer’s should always get a safe and healthy work environment and for that they must do every possible thing to ensure prevention. For that employers can consider the following action :-

  • Keep checking the official site to see whether there is any official recommendation like Ministry of Health and Family Welfare
  • Employees should be informed about measures that is supposed to be taken.
  • The employees should be updated with factual information.
  • They should be provided with specific equipment such as hand sanitizer, face mask, etc.

Travel :-  Government of India have restricted people from traveling to countries like China, USA, Italy and other COVID 19 affected countries. The Government also took an initiative of screening passengers flying from abroad to India and has suspended visa on arrival for nationals of Japan, China, Iran, Italy, and South Korea and even cancelled all the flight operations for the same.

Now the problem arises is what about people who need to travel abroad for business purpose. Will they be provided any shelter or how will their travel policy respond in this situation. Employers need to review whether the meeting can be conducted by video links or not.

  • Indian law does not grants leave to the COVID 19 patients. The affected employees are allowed for a paid leave.
  • Any company cannot terminate any employee based on the case of COVID 19 (if he/she is suffering or is suspected)
  • Employers are allowed for work from home and can implement that.
  • Employees can be restricted from entering the workplace if they are suspected of COVID 19.
  • The health policies are equal for all the employees and no one should be discriminated in any basis.


COMPANY INSURANCE

All the companies affected by coronavirus has to consider whether adverse financial consequences of business can be claimed under the insurance policy or not. Thus, the companies need to review their present insurance policies in order to protect themselves against any losses in this worst situation

The extent of the insurance cover depends on the specific terms of each policy.

 

 

Written By:
Neha  Roy

Neha Roy


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