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Delhi High Court holds countrywide lockdown is in the nature of "force majeure" - injuncts Vedanta from invoking the bank guarantees - prima facie case of special equities

The Delhi High Court on April 20, 2020 {M/s HALLIBURTON OFFSHORE SERVICES INC. v. VEDANTA LIMITED & ANR} held that the countrywide lockdown, which came into place on 24th March, 2020 was prima facie in the nature of force majeure. It was held that such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner. 

It was held that the listing of the lockdown, presently in place, consequent to the unfortunate COVID-2019 pandemic, which has ravaged the country and, indeed, the world, has resulted, the inability – and, indeed, impermissibility – of workmen being able to travel or, indeed, of any personnel being able to move from one place to another, during the period of lockdown.

The HC held that it is prima facie of the view that the extreme submission, advanced by Dr. Singhvi, that judicial interference with 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 on which Dr Singhvi himself relies.

It was held that in the recent decision of Supreme Court in Standard Chartered Bank Ltd (2019 SCC Online SC 1638) it was laid down that irretrievable injustice, and special equities, as distinct circumstances, the existence of either of which would justify an order of injunction. 

It was held that viewed any which way, 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 held that where such special circumstances 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, being treated as exceptions to this general principle.

It was held that 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. It was observed that the devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented.

It was observed that 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.

It was held that Prima facie, 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.

It was directed by the High Court in operative part that there shall be an ad interim stay on invocation and encashment of the eight Bank guarantees, till the next date of hearing by respondent no. 1. 

In the present case, the petition was preferred under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection, by way of a restraint, against Respondent No. 1, injuncting the said respondent from invoking or encashing eight bank guarantees, five of which are due to expire on 30th June, 2020, and the remaining three on 24th November, 2020, issued by the ICICI Bank (Respondent No 2 herein), in favour of Respondent No. 1, under instructions of the petitioner. The interim relief was granted by the HC, as aforesaid, till the next date of hearing.

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