Can force majeure apply against enforcement of bank guarantees? The Delhi High Court’s analysis

by | Dec 14, 2020

Halliburton Offshore Services Incorporated (Petitioner) and Vedanta Limited (Respondent) had entered into a contract for the development of three oilfields. The Petitioner had undertaken to complete the drilling of the oil wells by 31 March 2020. However, on 22 March 2020, the Petitioner sought an extension of the timeline, citing the Covid-19 pandemic and the resultant lockdown imposed by the government of Rajasthan from 22 March to 31 March 2020, which was subsequently extended throughout India. The Respondent rejected the Petitioner’s argument and sought to invoke the bank guarantees given by the Petitioner for breach of contract. The Petitioner approached the Delhi High Court (Delhi HC) seeking an injunction against the invocation of the bank guarantees.

The Respondent argued:

  • that an invocation of a bank guarantee is a separate matter and is not affected by any disputes that may arise out of the non-performance of any obligation by either party;
  • that a court can issue an injunction only on the invocation of a bank guarantee in circumstances where the bank fulfilling the guarantee is aware of an egregious fraud being committed on account of paying under the bank guarantee; and
  • that the Petitioner was merely using force majeure as an excuse after failing to adhere to the deadlines of the project.

The Petitioner argued:

  • that the Respondent had agreed to 31 March 2020 as the deadline for completing the work, and that a very small part of the work was still pending on 22 March 2020;
  • that an injunction on the invocation of bank guarantees can be sought on the ground of special equity to prevent irreparable damage to the debtor;
  • that the Petitioner would suffer irreparable harm if the bank guarantees were invoked; and
  • that the timeframe of the injunction on the invocation of the bank guarantees was very limited (only until one week after the lockdown was lifted by the Rajasthan government).

A big part of adjusting to the new normal in the context of commercial contracts is understanding the operation of force majeure clauses.

This update by Akil Hirani, Managing Partner at Majmudar & Partners explains whether force majeure applies against enforcement of bank guarantees based on the case of Halliburton Offshore Services Incorporated v. Vedanta Limited. The update has been published by the International Bar Association

Read the full update here.

More News

US Fiscally Transparent LLC qualifies as a US Tax Resident

The Indian tax authorities have denied treaty benefits to fiscally transparent entities such as foreign partnership firms and limited liability corporations (LLCs) on the ground that such entities are not liable to tax in their home country and do not qualify as tax...

read more

ITR World Tax 2025 Rankings

We are pleased to share that we have been ranked by ITR World Tax in the practice areas of General Corporate Tax, Indirect Tax and Transfer Pricing. Akil Hirani, Managing Partner and Head of Transactions, and Ravi S. Raghavan, Partner - Tax and Private Client Group,...

read more

SEBI’s new proposal on FPI disclosures

The Securities and Exchange Board of India (“SEBI”) has released a consultation paper proposing to modify the disclosure requirements for large foreign portfolio investors (“FPIs”).  In August 2023, by its circular SEBI/HO/AFD/AFD-PoD-2/CIR/P/2023/148, SEBI...

read more

Akil Hirani interviewed by The Legal 500

Original source: Legal500.com Akil Hirani, Managing Partner and Head of Transactions, outlines the philosophy of the firm and explains how the firm is adapting to client needs. What do you see as the main points that differentiate Majmudar & Partners from your...

read more

Karnataka Gig Worker Law

The Karnataka government has recently issued the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Bill, 2024 (Bill) and has invited objections/ suggestions from stakeholders.  The provisions of the Bill will apply to all platform aggregators in...

read more