Every breach cannot be justified merely on the invocation of COVID-19 as a Force Majeure condition: Delhi High Court
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Every breach cannot be justified merely on the invocation of COVID-19 as a Force Majeure condition: Delhi High Court

Aditi Singh

The Delhi High Court has vacated its earlier order restraining Vedanta Ltd from invoking eight bank guarantees extended by Halliburton Offshore Services in connection with a development contract for certain blocks in Rajasthan. (Halliburton Offshore Services vs Vedanta Ltd)

The Court has held that every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition.

The order was passed by a Single Judge Bench of Justice Prathiba M Singh.

Justice Prathiba M Singh
Justice Prathiba M Singh

Pursuant to a tender floated by Vedanta, Halliburton Offshore Services (Petitioner) and Vedanta (Respondent) had entered into a contract for integrated development of certain blocks (Mangala, Bhagyam and Aishwarya) in Rajasthan.

In terms of this contract, various Performance, Liquidated Damages and Advance bank guarantees were furnished by Halliburton.

The Petitioner contended that owing to the COVID-19 lockdown, it was unavoidably handicapped in performing the contract and thus invoked the force majeure clause in the contract.

Consequently, the Petitioner sought a direction to stay the invocation of a bank guarantees furnished by it to Respondent.

Prima facie holding that the COVID-19 lockdown was in the nature of force majeure, the High Court, in April, restrained the Respondent from invoking bank guarantees extended by the Petitioner.

The Petitioner argued that there were no compelling reason to dissolve the injunction and the arbitration clause in the contract had already been invoked.

The Respondent, on the other hand, argued that the bank guarantees were independent contracts which were not subservient to the main contract and were unconditional in nature.

It was added that invocation of a bank guarantee could be stayed only on the grounds of egregious fraud or special equities, which were not present in the present case.

The Respondent contended that although the factum of lockdown was not disputed, the Project in question was delayed even prior to the outbreak of COVID-19.

Since Force Majeure depended on the construct of the contract and bank guarantees were unconditional and irrevocable, the Petitioner was not entitled to any relief, the Respondent iterated.

After perusing the monthly reports of the Project, the Court observed that even before the Force Majeure invoked, it was prima facie visible that the Petitioner did not adhere to the deadlines for completion of the Project and was in breach.

Observing that COVID-19 was undoubtedly a Force Majeure event, the Court said,

The question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case. Every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. The Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non-performance due to the epidemic/pandemic.
Delhi High Court

The Court opined that a Force Majeure clause was to be interpreted narrowly and not broadly and a ‘real reason’ and a ‘real justification’ would justify its invocation.

The Court remarked,

"The outbreak of a pandemic cannot be used as an excuse for non-performance of a contract for which the deadlines were much before the outbreak itself.."

Accordingly, the ad-interim order was vacated and the petition was disposed.

The Court concluded that the Petitioner had defaulted in performance despite repeated opportunities and since the bank guarantees were unconditional, irrevocable and valid, no case was made out for passing of any interim order staying the invocation or encashment.

The Court has clarified that its observations shall not bind the arbitral proceedings in any manner whatsoever.

The Petitioner was represented by Senior Advocates Gopal Subramanium, Sandeep Sethi, Sacchin Puri with Advocates Piyush Sharma, Dhritiman Bhattacharyya, Deeti Ojha, Ujwala, Pavan Bhushan, Aditya Prasad, Dhananjay Grover.

The Respondent was represented by Senior Advocate Harish Salve with Advocates Anuradha Dutt, Anish Kapur, Nikhita Suri, Kunal Dutt.

Read the Order:

Halliburton Offshore Services vs Vedanta Ltd - HMJ Prathiba M Singh.pdf
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