'Lockdown Prima Facie In Nature Of Force Majeure' : Delhi HC Stays Bank Guarantees' Invocation [Read Order]

Observing that the lockdown was prima facie in the nature of a force majeure, the Delhi High Court passed an interim order restraining the invocation of bank guarantees.

"The countrywide lockdown, which came into place on 24th March, 2020 was, in my opinion, prima facie in the nature of force majeure.

Prima facie, in my view, special equities do exist, as would justify grant of the prayer, of the petitioner, to injunct the respondent from invoking the bank guarantees of the petitioner, forming subject matter of these proceedings, till the expiry of a period of one week from 3rd May, 2020, till which date the lockdown has been imposed", observed Justice C Hari Shankar in the order.

The order was passed in an application filed by Halliburton Offshore Services Inc under Section 9 of the Arbitration and Conciliation Act seeking to restrain Vedanta Ltd from encashing eight bank guarantees issued in its favour to secure the performance of obligations under a contract to drill petroleum wells.

Senior Advocate Sandeep Sethi, appearing for the petitioner, submitted that the contractual obligations have been substantially performed, and the delay in the execution of the remaining portion was due to the lockdown imposed in the wake of COVID-19 pandemic.

Senior Advocate Dr A M Singhvi, appearing for Vedanta, contended that the courts can stay the invocation of bank guarantees only in exceptional circumstances such as fraud. He further submitted that the plea of force majeure was an after-thought and cannot constitute a justifiable basis to grant an interim injunction.

Evaluating the submissions, Justice Hari Shankar noted that the Courts are empowered to stay encashment of bank guarantees on grounds of "special equities" to prevent "irretrievable harm".

Referring to the SC decision in Standard Chartered Bank Ltd v Heavy Engineering Corporation Ltd, the judge observed :

"there appears to be no gainsaying the proposition that, where "special equities" exist, the court is empowered, in a given set of facts and circumstances, to injunct invocation, or encashment, of a bank guarantee". 

It was further observed that the lockdown situation should be taken into account.

"We are placed, today, in uncomfortably peculiar circumstances. A pandemic, of the nature which affects the world today, has not visited us during the lifetime of any of us and, hopefully, would not visit us hereinafter either. The devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented. The measures, to which the executive administration has had to resort, to somehow contain the fury of the pandemic, are equally unprecedented. The situation of nationwide lockdown, in which we find ourselves today, has never, earlier, been imposed on the country. The imposition of the lockdown was by way of a sudden and emergent measure, of which no advance  knowledge could be credited to the petitioner – or, indeed, to anyone else"

In response to Dr Singhvi's submission that the "petroleum" was an exempted activity during lockdown, the Court observed that the petitioner was not involved in production of petroleum, but drilling of petroleum wells.

"Prima facie, there is substance in the submission, of Mr. Sethi, that, even if petroleum were to be treated as an essential commodity, and the activity of production thereof were exempted from the rigour of the lockdown, the petitioner is not engaged, stricto sensu, in the production of petroleum, but is, rather, engaged in drilling of the wells, which activity is substantially, if not entirely, impeded as the result of the imposition of the lockdown"

The Court granted interim relief by observing :

"For the present, I am convinced, prima facie, that, in view of the submission, of the petitioner, that it was actually working on the project till the imposition of lockdown on 22nd March, 2020, or at least shortly prior thereto, and in view of the sudden and emergent imposition of lockdown, the interests of justice would justify an ad interim injunction, restraining invocation or encashment of the aforesaid eight bank guarantees, till the expiry of exactly one week from 3rd May, 2020, till which date the lockdown stands presently extended". 

Last week, the Bombay High Court had declined to give the benefit of 'force majeure' exemption to steel importers in respect of invocation of bank guarantees.

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