The Delhi High Court vacated its ad-interim order dated 20 April 2020 which had injuncted the invocation of bank guarantee on the ground that the lockdown is in the nature of force majeure being special equities causing irretrievable injury.
The Court held that while there was no doubt that COVID-19 is a Force Majeure event, the ground of force majeure would have to be adjudged on the basis of the fact situation and whether this event was the cause of the non-performance. The Court opined on two issues:
On both the issues the court held that the question as to whether COVID-19 would justify non-performance or breach of a contract has to be examined on the facts and circumstances of each case. Every breach or non-performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. The Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non-performance due to the epidemic/pandemic.
It noted the settled position in law that a Force Majeure clause is to be interpreted narrowly and not broadly. Parties ought to be compelled to adhere to contractual terms and conditions and excusing non-performance would be only in exceptional situations. As observed in Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80 it is not in the domain of Courts to absolve parties from performing their part of the contract. It is also not the duty of Courts to provide a shelter for justifying non-performance. There has to be a ‘real reason’ and a ‘real justification’ which the Court would consider in order to invoke a Force Majeure clause.
In the present case, the court held that the past non-performance of the Contractor cannot be condoned due to the COVID-19 lockdown in March 2020 in India. The Contractor was in breach since September 2019. Opportunities were given to the Contractor to cure the same repeatedly. Despite the same, the Contractor could not complete the Project. The outbreak of a pandemic cannot be used as an excuse for non-performance of a contract for which the deadlines were much before the outbreak itself.
The question as to whether the Force Majeure clause itself would apply or justify non-performance in these facts would have to be finally determined finally in the arbitral proceedings. At this stage the Force Majeure clause does not afford any succour or shelter to the Contractor, to seek restraint against encashment of the Bank Guarantees.
The Court observed that at the time when the ad-interim order was passed by the ld. Single Judge the pleadings between the parties were not complete. In fact, most of the relevant correspondence was not filed by the Contractor and has now come on record by way of the reply and the rejoinder and further submissions filed by the parties. Thus, the submission on behalf of the Contractor that the ad-interim order ought to be continued is not tenable. The said order being ad-interim in nature, was prior to pleadings between the parties and does not deserve to be continued in favour of the Contractor, for the reasons stated above.
Therefore, the Court concluded that no case is made out for passing of any interim order staying the invocation or encashment of three sets of Bank Guarantees. Accordingly, the ad-interim order dated 20th April, 2020 (as modified on 24th April 2020), was vacated in the above terms.
The Bar Council of India does not permit solicitation of work and advertising by legal practitioners and advocates. By accessing the Shardul Amarchand Mangaldas & Co. website (our website), the user acknowledges that: