COVID lockdown across the country is a Force Majeure event

Daniyal Qureshi | Symbiosis Law School Pune | 30th April 2020

Halliburton Offshore Services. v. Vedanta Limited. (2020) SCC OnLine Del 524

Judgement 

• The view that Judicial interference with invocation and encashment of bank guarantees is ultra vires is unlawful cannot be accepted. The nature of a bank guarantee is to condone an unconditional payment and nothing stops the holder of the bank guarantee to encash such bank guarantees. However there are two conditions envisioned and carved out by the judiciary in which the court shall have the authority to interfere with and stay the operation of a bank guarantee. The Supreme Court^[1] has laid down that the courts should be slow and cautious in granting a stay to the operation of a bank guarantee. The court says that the first condition which shall halt the operation of the bank guarantee is fraud. “A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so.”^[2] The second condition that would entitle the judiciary to interfere with the operation of a bank guarantee is that if the encashment or invocation of such bank guarantee would cause gross injustice to any of the parties. 
• The petitioner seeks a stay to the encashment of the bank guarantees in light of Section 56 of the Indian Contract Act 1872 which embodies the doctrine of “Force Majeure”. Standard Chartered Bank Ltd v. Heavy Engineering Corporation Ltd^[3] the Supreme Court held that it is a settled principle of law that a bank guarantee is an independent contract in itself. “The dispute between the beneficiary and the party at whose instance the bank has given the guarantee is immaterial and is of no consequence. There are, however, exceptions to this Rule when there is a clear case of fraud, irretrievable injustice or special equities.” Therefore, the petitioner seeks to establish special equities in the present case, the same being the doctrine of force majeure. 
• The Hon’ble High Court at Delhi took note that this countrywide lockdown to prevent the spread of a disease is an unprecedented and truly horrifying time for all of mankind. The court further took notice that this lockdown was beyond the control and foreseeability of any of the parties. That there is no doubt that this lockdown is an event of Force Majeure. 
• The fact that the lockdown is an event of force majeure does not by default discharge any contract under the law of Section 56 of the India Contract. The could would have to delve into the merits of the case and look at the operations of the contract and how it is affected by this event. 
• In the present case the operations of the petitioner were adversely affected by the lockdown in view of which the High Court allowed the present petition. 

^[1]  (1997) 1 SCC 568

^[2] (Supra)

^[3] 2019 SCC OnLine Sc 1638