Independent letter of credit obligations defeated COVID-19 based restraint, as force majeure and frustration did not excuse payment.

Letters of credit were treated as independent banking obligations, separate from the underlying buyer-seller dispute, so interim restraint on encashment was not warranted. The force majeure clause was available only to the seller and could not be relied on by the buyers, while the contracts were on a cost and freight basis and the seller had already performed by shipping the goods. COVID-19 lockdown and downstream payment difficulties did not, on these facts, justify non-payment, and the materials relied on indicated that steel distribution and related port activity remained essential and not prohibited. Authorities on frustration and supervening impossibility were found inapplicable.

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Issues: Whether the petitioners were entitled to ad-interim relief restraining the bank from negotiating or encashing the letters of credit on the ground of COVID-19 related lockdown, force majeure, frustration and impossibility of performance.

Analysis: The petitions were under section 9 of the Arbitration and Conciliation Act, 1996 seeking interim restraint against encashment of letters of credit. The letters of credit constituted an independent banking arrangement, separate from the underlying buyer-seller disputes, and the bank was not concerned with those disputes. The force majeure clause in the contract was available only to the seller and could not be invoked by the buyers. The contracts were on cost and freight basis, the goods had already been shipped, and the seller had performed its part of the bargain. The lockdown and the petitioners' inability to honour their downstream commitments did not furnish a basis to resist payment obligations. The notifications relied upon also indicated that steel distribution and related port activities remained essential services and that movement was not prohibited. The authorities on frustration and supervening impossibility did not assist the petitioners on these facts.

Conclusion: The petitioners were not entitled to ad-interim relief and the request for restraint on encashment of the letters of credit was rejected.

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