Arbitration weekly update – M/s Halliburton Offshore Services Inc. v. Vedanta Limited & Anr

In this case, the HC had been approached by Halliburton (Petitioner) under Section 9 of the Arbitration and Conciliation Act, 1996 (Act), seeking an interim injunction restraining Vedanta (Respondent) from invoking or encashing eight bank guarantees (BGs) which had been submitted by the Petitioner in furtherance of the contract between the parties for drilling and development of three oil wells (Contract).
The Petitioner claimed that it would have been able to complete the works under the Contract by the extended deadline of March 31, 2020 but was prevented from doing so on account of the lockdown measures imposed by the Government of India as well as the Government of Rajasthan from March 22, 2020 onwards for combating the Coronavirus (Covid-19) pandemic. The Respondent had indicated that it would (and subsequently did) terminate the Contract and invoke the BGs.
The HC inter alia based its decision on the following factors:
1) The Supreme Court’s judgments in U.P. Cooperative and Svenska Handelsbanken lay down the clear legal position that courts should generally refrain from granting injunctions against invocation of BGs, other than in two exceptional circumstances:
– in cases of egregious fraud involving the BG (which was not the case here); and
– in cases of ‘special equities’ to prevent irretrievable injustice between the parties.
2)Though the Respondent contended that petroleum production was an activity exempt from the lockdown measures, and that Petitioner could have thus carried on its contractual activities, the Petitioner was not involved in petroleum production per se, but in fact in drilling of wells, which had been severely impeded by the state and Central lockdown. The HC prima facie considered this to be in the nature of force majeure.

Thus HC thus concluded that, given the facts and circumstances of the present case, special equities indeed existed and invocation of the BGs would cause irretrievable injury to the Petitioner. While the HC was of the view that a final decision on this matter would require further consideration of the disputed facts, it deemed the circumstances fit for a grant of an ad-interim injunction until the expiry of one week after the lockdown is finally lifted, subject to reconsideration at the next hearing.

While the final hearing in this matter could possibly yield a different result, this Order demonstrates that Indian courts appreciate the gravity of the Covid-19 pandemic and its impact on businesses, and will give due consideration to the facts and circumstances of each case in the present scenario.

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