The Bombay High Court refused to grant ‘Force Majeure’ exemption to a set of steel importers, who had sought to restrain the encashment of their Letter of Credits by Korea-based exporters.
The companies had approached the High Court under Section 9 of the Arbitration and Conciliation Act, stating that the lockdown had rendered the performance of the contract impossible. Petitioner companies – Standard Retail Pvt Ltd, Integral Industries Pvt Ltd, Vinayaga Marine Petro Ltd and Hariyana International Pvt Ltd – invoked the Force Majeure clause in their contract with Hyundai Corp and GS Global seeking directions restraining the respondent bank Wells Fargo from encashing letters of credit.
Petitioners contended that contracts with Hyundai Corp and GS Global stood terminated as unenforceable on account of “frustration, impossibility and impracticability”. They relied upon Section 56 of the Indian Contract Act, 1972 and the Supreme Court’s judgment in Energy Watchdog Vs CERC (2017) and Satyabrata Ghose Vs Mugneeram Bangure & Co. (1954).
Court’s Observation
Firstly, the Court noted that the Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between the buyers and sellers. Notably, Justice A A Sayed also observed that the lockdown guidelines indicated that the distribution of steel has been declared as an essential service.
“The Notifications/Advisories relied upon by the learned Senior Counsel for the Respondent No. 1 does suggest that the distribution of steel has been declared as an essential service. There are no restrictions on its movement and all ports and port-related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services. The Notification of the Director-General of Shipping, Mumbai, states that there would be no container detention charges on import and export shipments during the lockdown period”.
Furthermore, Court said, “In any event, the lockdown would be for a limited period and the lockdown cannot come to the rescue of the Petitioners to resile from its contractual obligations with the Respondent No. 1 of making payments.” Justice AA Sayed observed that the Force Majeure clause in the present contracts applies only to exporters and cannot come to the aid of the Petitioners.
The bench further said,
“Moreover, the contract terms are on Cost and Freight basis (CFR) and the Respondent No. 1 has complied with its obligations and performed its part of the contracts and the goods have been already shipped from South Korea. The fact that the Petitioners would not be able to perform its obligations so far as its purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent No. 1.”
Thus ad-interim reliefs were rejected. Senior Advocate Vineet Naik instructed by Tuli Tuli & Co. appeared for GS Global, Ameya Gokhale along with Veena Sivaramakrishnan and Vaibhav Singh instructed by Shardul Amarchand Mangaldas & Co. for Hyundai Corp. Whereas Advocate SB Deshmukh along with Uttam Rane appeared for the petitioners.
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