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Lockdown prima facie in the nature of force majeure: Delhi HC restrains Vedanta from invoking bank guarantees against Halliburton

Aditi Singh

Prima facie holding that the COVID-19 lockdown is in the nature of force majeure, the Delhi High Court has restrained 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 order was passed by a Single Judge Bench of Justice C Hari Shankar in a petition preferred by Halliburton Offshore Services (Petitioner) against Vedanta Ltd (Respondent) under Section 9 of the Arbitration and Conciliation Act, 1996.

As an interim protection, the Halliburton had prayed for an injunction against Vedanta, restraining it from invoking or encashing eight bank guarantees issued by the ICICI Bank in favour of the Vedanta.

Pursuant to a tender floated by Vedanta, the Petitioner and the 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 argued that it had an extended deadline till March 31, 2020 to complete the project.

Although a substantial part of the project stood completed prior to the date, owing to a complete lockdown consequent to COVID-2019 pandemic, it was contended that Halliburton was unavoidably handicapped in performing the contract as it required travel of persons from overseas, as well as workmen from various parts of the country.

The Court was informed that in this scenario, the Halliburton wrote to the Vedanta, invoking the force majeure clause in the contract and seeking the benefit thereof.

It is the Petitioner’s grievance that the Vedanta refused to accommodate it and instead, reserved its right to take appropriate recourse under the contract which included termination of the contract and getting the balance activities completed through alternative resources at the risk and cost of the Petitioner.

Consequently, the Halliburton was constrained to move the High Court for appropriate reliefs.

Before the Delhi High Court, Vedanta argued that the only ground on which invocation of a bank guarantee could stayed, was the existence of egregious fraud which did not exist in the present case.

Referring to the repeated extensions taken by the Petitioner to complete the project, the Respondent further argued that the plea of force majeure was an afterthought and the Petitioner merely wanted to piggyback on the COVID-19 crisis and reap benefits therefrom.

After considering the submissions made by the parties, the Court opined that prima facie, the Vedanta’s submission that judicial interference with invocation or encashment of bank guarantees was permissible only in cases of egregious fraud was not acceptable.

“Besides, while egregious fraud is well-encapsulated as one of the two 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 observed.

The Court asserted that for grant of interim relief, all that was required to be seen was whether “special equities” could be said to exist.

Ultimately, the Court prima facie opined that the countrywide lockdown was in the nature of force majeure and proceeded to injunct the Respondent from invoking the bank guarantees of the petitioner

The Court said,

"Such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner. Mr. Sethi has submitted, categorically, that, till the date of clamping of the lockdown, on 22nd March, 2020, his client was in the process of proceeding with the project, and that, had the lockdown not be imposed, the project might have been completed by 31st March, 2020.

Prima facie, in my view, 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.”

The Court added that if no interim protection was granted, the Petitioner would suffer irretrievable injury and prejudice and said,

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. 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.
Delhi High Court

Thus, in view of the sudden and emergent imposition of lockdown and the interests of justice, the Court restrained Vedanta from invoking the guarantees till the next date of hearing.

The Court has directed the parties to complete the pleading in the case.

The matter would be list next before the appropriate roster bench.

Halliburton was represented by Senior Advocate Sandeep Sethi with Advocates Piyush Sharma, Dhritiman Bhattacharyya.

Vedanta was represented by Senior Advocate Abhishek Manu Singhvi with Advocates Anuradha Dutt, Anish Kapur, Kunal Dutt.

Read the Order:

Halliburton Jugement.pdf
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