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Every Breach or Non-Performance Cannot Be Excused Merely On The Invocation Of COVID-19 As A Force Majeure Condition: Delhi HC

The Delhi High Court on Friday held that the Force Majeure clause does not afford any succour or shelter to the Contractor, at this stage, to seek restraint against the encashment of the Bank Guarantees in plea seeking interim protection, by way of restraint against respondent/Vedanta Limited, injuncting the Vedanta from invoking or encashing bank guarantees.

A single-judge bench of Justice Pratibha M. Singh of Delhi High Court while pronouncing the judgment through video conferencing noted that “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 nonperformance due to the epidemic/pandemic.”

The Court gave its judgment in an application filed by M/s Halliburton Offshore Services Inc. under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim protection, by way of restraint against respondent/Vedanta Limited, 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, under the instruction of Petitioner/ M/s Halliburton Offshore Services Inc. 

Whereas, the bench while allowing the application stated, 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.” However, The Court further added that as to whether this interim injunction merits continuance, thereafter, or not, would be examined on the next date of hearing.

The Court further observed in its judgment that “As observed in Energy Watchdog (supra) it is not in the domain of Courts to absolve parties from performing their part of the contract. It is also not the duty of Courts to provide a shelter for justifying nonperformance. There has to be a ‘real reason’ and a ‘real justification’ which the Court would consider to invoke a Force Majeure clause.”

The Court was informed that “the Contractor in the present case was cautioned repeatedly since September 2019 by the Company that it was in breach. There was hardly any work done in the months of November 2019, December 2019, January 2020, February 2020, and March 2020. There was clear non-performance and lack of alacrity in completing the work on the various fields forming part of the Project. The reasons for the same are not to be gone into in this petition.”

On this issue, the Court stated that “The past non-performance of the Contractor cannot be condoned due to the COVID-19 lockdown in March 2020 in India. The Contractor was in breach since September 2019… The outbreak of a pandemic cannot be used as an excuse for nonperformance of a contract for which the deadlines were much before the outbreak itself.”

The bench while disposing of the petition further directed that “the opinion rendered herein is prima facie in nature and shall not bind the arbitral proceedings in any manner whatsoever. The respective claims and counterclaims would be liable to be adjudicated by the duly constituted Arbitral Tribunal, on their own merits, in accordance with the law.”

-India Legal Bureau

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