Encashment of Bank Guarantee Stayed

In the matter of M/s Halliburton Offshore Services Inc. v. Vedanta Ltd & Anr., the High Court of Delhi granted an ad interim relief to the Petitioner by retraining the Respondent from invoking and encashing bank guarantees furnished by the Petitioner in connection with a development contract in Rajasthan.

FACTS

The Parties had entered into a contract for development of certain blocks in Rajasthan. In terms of the said contract, several bank guarantees were furnished by the Petitioner. The deadline for the project had been extended till March 31, 2020.

Due to the lockdown, the Petitioner was unable to perform the contract, pursuant to which it notified the Respondent for invoking and seeking relief under the force majeure clause in the contract. The Respondent refused to accommodate the request of the Petitioner and instead, reserved its right to take recourse under the contract.

Consequently, the Petitioners moved to the Delhi High Court for appropriate relief, including a stay on invocation of bank guarantees.

ISSUE

Whether invocation or encashment of bank guarantees be stayed on account of the COVID-19 / lockdown reasons?

JUDGEMENT

The High Court of Delhi observed that a stay on invocation or encashment of bank guarantees can only be granted if at least one (1) of the following grounds is established:

  • Existence of fraud of egregious nature;
  • Existence of special equities;
  • Encashment/ Invocation of the bank guarantee will cause irretrievable injury to the party.

The Court held that the nationwide lockdown is in the nature of force majeure. Such a lockdownis unprecedented and was incapable of being predicted by either the Petitioner or the Respondent. Therefore, the lockdown established the existence of ‘special equities’.

Further, the Court held that the imposition of the lockdown caused a sudden disruption of Petitioner’s work. In such a case, encashment of bank guarantees would cause an irretrievable injury to the Petitioner.

Accordingly, an ad interim injunction was granted against the invocation of bank guarantees till the next date of hearing.