Invocation of bank guarantee under section 9 of the arbitration and conciliation act

    1. The Hon’ble Delhi High Court in its judgment in M/s Halliburton Offshore Services Inc. vs Vedanta Limited & Anr., [OMP (I) (COMM) & I.A. 3697/2020 as decided on 20.04.2020], considered the plea of the Petitioner-Company seeking ad- interim injunction on the invocation of performance bank guarantees extended by it to the Respondent-Company, i.e. Vedanta Limited towards the development of three oil blocks (Mangala, Bhagyam and Aishwarya) in Barmer (“Bank Guarantee”). The petitioner preferred an application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Act”) to see an interim injunction on the invocation of Bank Guarantees.Petitioner‘s case was that the extended deadline for the competition of work was 31.03.2020, which was acquiesced by the Respondent-Company in its communications. However, since the State of Rajasthan announced lockdown on 22.03.2020, the Petitioner had to stop its project work amid the non-availability of labourers. The Petitioner further averred that had the lockdown not been announced, it could have completed the project within the extended deadline. The Respondent-Company denied its acquiescence in the extension of the deadline as argued by the Petitioner and further rested its case primarily on the ground that invocation of Bank Guarantees can only stay in case of either egregious fraud or irreparable injustice. It was argued that neither of the conditions has been met and especially given that the arbitration award, whenever passed, may account for wrongful invocation, if any, and accordingly, the invocation of Bank Guarantees would not cause any irreparable harm.

       

      The Hon’ble Court took a prima facie view that the Respondent-Company had acquiesced to the extended deadline. Having taken the prima facie view in favour of the Respondent-Company, the Court dealt with the grounds for granting injunctions on invocation of Bank Guarantees and relied on the judgment of Supreme Court in Standard Chartered Bank Ltd. vs Heavy Engineering Corporation Ltd., [2019 SCC Online 1638] to put forth that apart from the aforesaid two grounds for seeking injunction, a new ground in form of ―special equities‖ has been recognised by the Supreme Court.

       

      Accordingly, the Hon’ble Court in applying the test of special equities came to a prima- facie finding that the Petitioner‘s prayer for grant of ad-interim injunction is justified in as much as, prima facie, it appeared that the lockdown pursuant to COVID-19 pandemic had prevented the Petitioner from fulfilling its obligations under the contract. Consequently, the Court granted an ad-interim injunction on invocation of Bank Guarantees till the expiry of one week from 03.05.2020, which was the earlier deadline for lockdown.