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Citing coronavirus lockdown, Delhi HC stops invocation of bank guarantees

Coronavirus (COVID-19): The lockdown, as imposed by the Centre is presently in place till May 3, 2020. The court has stayed the invocation of guarantees till a week after this date.

Written by Pritam Pal Singh | New Delhi |
April 21, 2020 3:50:32 am
The court has stayed the invocation of guarantees till a week after this date.

Coronavirus (COVID-19): The Delhi High Court Monday stayed invocation and encashment of the eight bank guarantees of a firm, which expressed its inability to develop three oil blocks with the deadline, observing the lockdown, which came into place on March 24, was “prima facie in the nature of force majeure”.

“Such a lockdown is unprecedented, and was incapable of having been predicted either by the respondent or by the petitioner,” Justice C Hari Shankar said in its interim order, while restraining Vedanta from invoking bank guarantees of Halliburton Offshore Service Inc.

It further observed the situation of nationwide lockdown, in which we find ourselves today, has never, earlier, been imposed.

“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. As a consequence, submits Mr (Sandeep) Sethi, the petitioner’s (Halliburton) activities had to suddenly discontinue on March 22, 2020, and have not been able to resume ever since,” it said.

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The lockdown, as imposed by the Centre is presently in place till May 3, 2020. The court has stayed the invocation of guarantees till a week after this date.

The guarantees were issued by the ICICI Bank on the instruction of Halliburton, of which five are due to expire on June 30, 2020, and remaining on November 24.

Senior Advocate Sandeep Sethi, appearing for Halliburton, argued that though a substantial part of the project was completed before the set deadline, but owing to a complete lockdown on industrial activities as well as on movement of persons in the country, including Rajasthan, which continues to affect the country till date – the petitioner was unavoidably handicapped in performing the contract. It was emphasised in the petition that the performance of the contract required travel of persons from overseas and workmen from various parts of the country.

Sethi pointed to the court that his client had addressed communications, “dated 18th March, 2020 and 25th March, 2020, to Respondent No. 1 (Vedanta), invoking the force majeure clause in the contract…and seeking the benefit thereof.”

He added Vedanta earlier extended the project deadline till March 31. “A substantial portion of the project was completed prior to the deadline,” Sethi said, adding “to the effect that only 2.1% of the work relating to the Mangla field, 5.5% of the work relating to the Bhagyam field and 2.4% of the work relating to the Aishwariya field, remained, which could easily have been completed before March 31, 2020, had the restrictions clamped by the lockdown not intervened.”

Senior Counsel Abhishek Manu Singhvi, appearing for Vedanta, submitted in law, the only ground on which invocation of a bank guarantee can be stayed, is the existence of egregious fraud.

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