Delhi HC says COVID19 cannot be used as force majeure, when the deadline for performance was before the pandemic

Halliburton had filed a petition in the Delhi High Court to restrain Vedanta limited from invoking the bank guarantees, in the wake of COVID19. Halliburton filed the petition on the ground of Force Majeure Clause that has been invoked due to the pandemic.

The Delhi HC has rejected the plea, said that COVID-19 is a force majeure incident, but the decision of restraining from invoking bank guarantee, will depend on the facts and circumstances of the case.

In this case, the petitioner Halliburton was given a contract by the Vedanta Limited for development of oil and gas fields in Rajasthan. For this purpose, the petitioner had furnished various bank guarantees. The deadline for contract was 31st January 2020, which was further extended to 31st March 2020, on petitioner’s request. The petitioner was in a breach since September 2019 and various opportunities were given to them to complete the project. 

The application was filed under Section 9 of the Arbitration and Conciliation Act, 1996. It was challenged that whether COVID19 justifies the breach of contract or the non- performance of their part of the contract. To which, the court noted that every such breach or non-performance cannot be justifiedmerely on the ground of COVID19 as a Force Majeure condition.

The matter can only be decided when the following factors are understood-

• The deadline as per the contract,
• The conduct of the parties before the whole COVID19 situation took place,
• The steps that were to be taken by the party to complete his part,
• The submissions that were to be made as per the contract.

The court held that Force Majeure clause has to be interpreted narrowly, and will only be applicable to compel the parties to adhere to the terms of the contracts and excuse non- performance only in exceptional cases. The deadline for the performance was much before the outbreak of the virus and therefore it cannot be used as an excuse for non- performance of their part of the contract.

Earlier, on April 20, the court had passed an ad-interim order, which restrained the invocation of the bank guarantees on the ground that the lockdown acted as a Force Majeure. However, on 29th May, the court overrode the earlier order as complete records of the parties were not known and a new order was passed.

The court directed Halliburton to ascertain the amount to be recovered by Vedanta Limited, by reconciling the accounts and instructing the banks to release the guaranteed amounts in favor of the company.