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Business | Impact on Business Operations

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Impact on Business Operations

Covid-19 had taken a toll on the whole world. Every country and its respective governments are doing their best to combat with the Coronavirus.  However, a developing country like India is surfing the most.  For 21 days, India has been put under a lockdown, which means people are not allowed to work, travel, go out, party, or be a part of any social gathering.  The lockdown has been especially announced so that people distance themselves and prevent the spread of the deadly virus.

Introduction

Every sector is facing its own difficulties while the world is tackling the issue. However, the most affected area because of this chaos is the Business Sector. Operations and work of business havecome to a stagnant position, and from a daily wage earner to a businessman, everyone is struggling to put in their operations back or to keep the business going so that losses can be minimised. Moreover, in India, the financial year for both private and public companiesis 31st march and therefore, it has become a major problem for the business to handle the situation.

Government of India is trying its best to lighten the burden on the owners and employers of the companies and businesses.  Some ofthe provisions are:

  1. As there are travel restrictions, domestically and internationally, both, provisions and regulations relating meeting of the board of directors under the Companies Act,2013 have been relaxed. According to the Rule 4 of the Companies (Meetings of Board and its Powers) Rules, there is a list of matters mentioned under which a director cannot hold a meeting unless and until there is no physical presence. Meetings cannot be conducted through video conferencing, skype calls, or any other electric mode if the matters are related to annual financial statements, Board’s report, prospectus; decisions regarding amalgamation, merger, demerger, acquisition and takeover; and audit committee meetings for consideration of financial statements. As right now, people cannot travel to work, it has become an issue as these decisions are important to take on a timely basis. Therefore, to overcome such a scenario, the Ministry of Corporate Affairs (MCA), by its notification dated 19 March 2020 has decided to relax the necessity of the physical presence of the director, officer, or any other employer of the company. The meetings can be duly conducted by video conferencing or any other electric mode so that there is no delay in the compilation of the procedure as mentioned under the Companies Act, 2013.
  1. The central and some state governments have issued certain notices to safeguard the interest of both the employer as well as the employee.  The Ministry of Personnel and Public Grievances of India had issued notices to let the employee work from home. The notice was issued under the confidence that this will protect one’s health, reduce social distancing, prevent the spread of the virus and will also not hamper the growth or work of the company. Work from home cannot be allotted to those working in emergency services or for those who are working for the prevention of the spread of the virus.

Following are the points which can be considered by the companies while providing work from home to the employees:

  1. The employer needs to keep in mind that salaries cannot be deducted of the employees on the basis of the outbreak of Covid-19. The employee is expected to pay the employer according to the terms and conditions of the contract of employment.
  2. The employer is not allowed to consider the days of work from home as leave. An employee working from home would be considered on duty and should be provided with the salary or remuneration.
  3. A company is allowed to lay off employees only according to the Industrial Disputes Act, 1947, which will outlook the factors like notice period, and other terms and conditions of the employment letter.
  4. On 19thFebruary 2019, the Department of Expenditure, Ministry of Finance announced that this pandemic situation would be known as a force majeure event. Therefore, the force majeure clause (FMC) can be invoked under the Manual for Procurement of Goods, 2017 (being the guidelines for procuring goods and services by a government organisation). Force Majeure is known as "superior force" is a broader concept where the accident is not necessarily connected with nature and can be connected to human agency. One such example of force majeure is war. When a clause of force majeure is included in a contract, it gives the powers to the party to suspend or terminate such contract on the basis of the clause of “force majeure.

 

However, it is of due importance that what kind of “force majeure” clauses are included in the agreement. A force majeure clause can vary on the type of contract. Sometimes, a contract may have a clause which restricts the party to suspend or terminate the contract even if something unforeseeable happens. Under such circumstances, a party is not entitled to suspend the orders. On the other hand, there are contracts under which includes a finite list of force majeure events in an attempt to narrow the clause’s applicability and thereby excuse performance less often. Some commonly listed force majeure events include natural disasters such as earthquakes, hurricanes, floods, epidemics, war, quarantines, terrorist acts, government action such as changes in the law, activities of the union such as strikes and slow-downs, and shortages of necessary materials.

The below mentioned are certain points which need to be kept in mind while terminating or suspending a contract:

  1. Evaluation of force majeure clause has to be done, that whether this clause has the right to suspend a contract temporarily or permanently.
  2. The clause force majeure will also be examined on the fact that which type of events would be covered under the clause.
  3. When there are no provisions related to force majeure to suspend or terminate the contract, the party can invoke the contract by using “doctrine of frustration” which means a contract becomes void, when the main event to be performed of the contract becomes impossible to perform. The doctrine of frustration is mentioned under section 56 of the Indian Contract Act.

 

Conclusion

Currently, the whole country is suffering the brunt of the lockdown;however, it is for the greater good of the world. There are losses that each business is going through, but this are the testing times. A business can understand the above-mentioned points and can then take the necessary steps to prevent the business from mishappenings or any other further losses.

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