By – Meenakshi Iyer
The Delhi High Court recently ruled that the lockdown due to the Covid 19 pandemic was in the nature of a force majeure in the particular circumstances of the case and stayed the invocation of bank guarantees until the next date of hearing.
Facts of the case
Halliburton Offshores Service Inc. (“Halliburton”) and Vedanta Limited (“Vedanta”) entered into a contract for the development of drilling wells in Rajasthan in April 2018. 8 bank guarantees were furnished by Halliburton under the contract, including performance bank guarantees. Halliburton could not complete the project on time and sought extensions. The last of such extension was to be valid until 31st March, 2020, by when Halliburton was confident of completing the project. It is Halliburton’s case that it could not complete the remaining work by 31st March, 2020 as it involved travel of people from overseas and from various parts of the country, which was not possible due to the lockdown.
Halliburton requested Vedanta on 18th and 25th March, 2020 to extend the timeline and invoked the force majeure clause of the contract. Vedanta refused and threatened termination of the contract and getting the balance work executed through alternative resources at the risk and cost of Halliburton.
In the circumstances, Halliburton filed a petition before the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996 seeking ad-interim protection from the invocation by Vedanta of the 8 bank guarantees. Vedanta contended that it was settled law that invocation of bank guarantees cannot be stayed unless there is a case of egregious fraud and such a situation did not exist in the present case. Vedanta relied upon the judgments in U.P. Co-operative Federation Limited[1], Svenska Handelsbanken[2] and Itek Corporation[3].
Vedanta further contended that it did not extend the timelines for completion of the project. The delay was way beyond the contract timelines. Halliburton had unilaterally extended the timelines without the implied or express consent of Vedanta. The plea of force majeure was taken for the first time as an afterthought as Halliburton merely wanted to ride piggy back on the COVID-19 crisis.
The Court did not accept Vedanta’s submission that injunctive orders restraining invocation of unconditional bank guarantees were permissible only in cases of egregious fraud. The Court relied on the findings of the Apex Court in U.P. State Sugar Corporation[4] and Standard Chartered Bank Ltd[5] to conclude that injunctions in bank guarantee matters can be granted to prevent irretrievable or irreparable injury.
The Court held that where special equities exist, it was empowered to grant ad-interim injunction. The Court prima facie concluded that the countrywide lockdown was in the nature of force majeure and proceeded to injunct Vedanta from invoking the 8 bank guarantees. While clarifying that its views were prima facie, the Court held that the injunction order was in the interest of justice and necessary due to the unprecedented lockdown.
Note
The present order reflects the prima facie view of the court and remains valid only until 7 days after the lifting of lockdown. This order cannot therefore be cited as a precedent.
[1] U.P. Coop. Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [(1988) 1 SCC 174]
[2] Svenska Handelsbanken v. Indian Charge Chrome [(1994) 1 SCC 502]
[3] Itek Corporation v. First National Bank of Boston [566 Fed Supp 1210]
[4] U.P. State Sugar Corporation v. Sumac International Ltd.[ 1997) 1 SCC 568]
[5] Standard Chartered Bank Ltd v. Heavy Engineering Corporation Ltd [2019 SCC Online SC 1638]