2020 (4) TMI 917 - HC - Indian Laws

Bank guarantees restrained due to COVID-19 lockdown constituting force majeure creating special equities for interim relief

Halliburton Offshore Services Inc. Versus Vedanta Ltd.

Halliburton Offshore Services Inc. Versus Vedanta Ltd. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment include:Whether the invocation or encashment of bank guarantees can be restrained under Section 9 of the Arbitration and Conciliation Act, 1996.Whether the COVID-19 pandemic constitutes a force majeure event that justifies the non-performance of contractual obligations.Whether special equities exist that justify the granting of an injunction against the invocation of bank guarantees.Whether the petitioner is entitled to interim protection due to the alleged irretrievable injury or special equities arising from the pandemic-induced lockdown.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Restraint on Invocation of Bank GuaranteesRelevant Legal Framework and Precedents: The legal framework involves Section 9 of the Arbitration and Conciliation Act, 1996, and the principles governing the invocation of bank guarantees. Key precedents include U.P. Co-operative Federation Ltd. and Svenska Handelsbanken.Court's Interpretation and Reasoning: The court noted that judicial interference with the invocation of bank guarantees is permissible in cases of egregious fraud or special equities. The court emphasized that the COVID-19 pandemic and the resultant lockdown present unprecedented circumstances that may justify such interference.Key Evidence and Findings: The petitioner argued that the lockdown hindered its ability to fulfill contractual obligations, invoking the force majeure clause. The respondent countered that the petitioner had delayed performance long before the pandemic.Application of Law to Facts: The court applied the principle that special equities, such as the unforeseen lockdown, could justify an injunction against the invocation of bank guarantees.Treatment of Competing Arguments: The court considered the respondent's argument that the petitioner was using the pandemic as an excuse for prior delays but found that the lockdown's impact was genuine and immediate.Conclusions: The court concluded that special equities existed, warranting a temporary injunction against the invocation of the bank guarantees until one week after the lockdown's scheduled end.Issue 2: Force Majeure and Contractual ObligationsRelevant Legal Framework and Precedents: The force majeure clause in the contract and its interpretation in light of the pandemic.Court's Interpretation and Reasoning: The court recognized the lockdown as a force majeure event, impacting the petitioner's ability to perform contractual obligations.Key Evidence and Findings: The petitioner cited government orders and restrictions that impeded work, while the respondent argued that the project was exempt from lockdown restrictions.Application of Law to Facts: The court found that the lockdown, being unprecedented and unforeseeable, constituted a force majeure event.Treatment of Competing Arguments: The court acknowledged the respondent's claim of exemption but noted the lack of clarity and evidence supporting this claim.Conclusions: The court held that the lockdown justified the petitioner's inability to perform, supporting the claim of force majeure.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'The countrywide lockdown, which came into place on 24th March, 2020 was, in my opinion, prima facie in the nature of force majeure.'Core Principles Established: The court established that unprecedented events like the COVID-19 pandemic could constitute special equities justifying the restraint of bank guarantee invocation.Final Determinations on Each Issue: The court granted an ad interim injunction against the invocation and encashment of the bank guarantees, recognizing the lockdown as a force majeure event and acknowledging the existence of special equities.