The High Court of Delhi deciding the case of Halliburton Offshore Services Inc. v. Vedanta Limited & Anr restrained Vedanta Limited and others from invoking and encashing eight bank guarantees against Halliburton Offshore Services Inc. regarding the integrated development contract in Rajasthan holding the nationwide lockdown due to coronavirus pandemic, as a nature of the force majeure clause.
Brief facts of the case
The petitioner (Halliburton) and respondent (Vedanta) had entered into a contract for integrated development of three blocks (Mangala, Bhagyam and Aishwarya) on 25th April 2018. The said contract also mentioned various performances, liquidated damages and advance bank guarantees as furnished by the petitioner. Due to non-performance on the part of the petitioner owing to COVID-19 lockdown, the respondent wanted to terminate the contract and invoke and encash the eight bank guarantees issued by ICICI Bank. Reacting to this, Halliburton had prayed for an injunction against Vedanta under Section 9 of the Arbitration and Conciliation Act, 1996 restraining it from terminating the contract and invoking and encashing eight bank guarantees issued by the ICICI Bank in favour of Vedanta.
Arguments before the court
Shri Sandeep Sethi, the learned counsel for the petitioner invoked the force majeure clause for non-complaisance of the contract as a result of the coronavirus pandemic and subsequent lockdown. He contended that extension of time to 31st March 2020, to complete the project had been granted. However, owing to the complete lockdown on industrial activities and movement of people within the country, specifically the state of Rajasthan, consequent to the COVID-19 pandemic, the petitioner was unavoidably handicapped in performing the contract. He submitted that the respondent refused to accommodate the petitioner and reserves its right to take appropriate recourse under the contract, that is, to limit and not terminate the contract by getting a balance of activities completed through alternative means at the risk and cost of the petitioner. The counsel disputes the contention that egregious fraud is the sole ground for invoking a bank guarantee and instead established special equities.
Dr Abhishek Manu Singhvi, the learned counsel for the respondents vehemently opposed the prayer of Mr Sethi, learned counsel for the petitioner, and submitted that the only ground on which the invocation of a bank guarantee can stay, is the existence of egregious fraud and placed reliance on U.P Cooperative Federation Ltd v. Singh Consultants and Engineers Pvt. Ltd. and Svenska Handelsbanken v. Indian Charge Chrome. He further emphasised on the fact that the contract envisaged work was to be carried out by the petitioner, in three phases, and completed on 16th January 2019, 16th March 2019 and 16th June 2019. Thus, he submits that the delay caused was unconscionable and never condoned by his client. He further submits that his client never accepted or agreed to the said extensions, and had, rather, rejected the said requests, and it was the petitioner who on its own account, extended the time to 31st January 2020 and further to 31st March 2020. He submits that the petitioner was merely seeking to piggyback on the COVID-19 crisis that had befallen the country and to reap the benefits therefrom, by invoking the force majeure clause.
Court’s view
The High Court of Delhi prima facie is of the view that the submission made by the respondent’s counsel that judicial interference with the invocation, or encashment, of bank guarantees, where they are unconditional, is permissible only in cases of egregious fraud, is not acceptable even on the anvil of the decisions he relied on. Hon’ble Justice C. Hari Shankar is of the opinion that “while egregious fraud is well-encapsulated as one of the grounds on which invocation of an unconditional Bank guarantee may be injuncted, the contours of the second ground, of irretrievable or irreparable injury, are, in my opinion, somewhat more elastic”. The Court agrees that where special circumstances or special equities do exist, no occasion arises, to revert to the general principle regarding the contractually binding nature of a bank guarantee, or the legal obligation of the bank to honour the bank guarantee, these special circumstances having, in all cases, be treated as exceptions to this general principle. The Justice held that Dr Singhvi cannot dispute, on facts, the inability of workmen or personnel to travel from place to another and the impossibility to continue work, during the period of lockdown. Justice C. Hari Shankar held that:
“The countrywide lockdown, which came into place on 24th March 2020 was, in my opinion, prima facie in the nature of force majeure. Such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner.”
The contention made by the Dr. Singhvi that his client never agreed to the extension that the petitioner will perform the contract by 31st March 2020 was also rebutted in the letter addressed by the respondent to the petitioner. Prima facie, it indicates that though initially the petitioner might have been in default in adhering to its contractual obligations within the time stipulated, and the letter substantiates that the parties had agreed ad idem, that the project could be completed till 31st March 2020.
“We are placed, today, in uncomfortably peculiar circumstances. A pandemic, of 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.”
The Court is convinced prima facie that the petitioner was 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.
Court’s decision
The High Court of Delhi therefore, granted the injunction, purely ad interim in nature, and was granted only in view of the completely unpredictable nature of the lockdown, and its sudden imposition on 22nd March 2020, of which the petitioner could not legitimately be treated as having been aware in advance. Thus, an ad interim stay was placed on invocation and encashment of eight bank guarantees, till the next date of hearing.
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