Delhi HC vacates order restraining Vedanta from invoking bank guarantees

Senior advocate Harish Salve appearing for the Vedanta submitted that at the outset the law relating to Bank Guarantees is very well settled

NEW DELHI : NEW DELHI: The Delhi High court (HC) on Friday vacated an interim order restraining Vedanta Ltd from invoking and encashing the bank guarantees in connection with a development contract for some oil blocks in Rajasthan.

“Thus, insofar as the invocation of three sets of bank guarantees are concerned, no case is made out for passing of any interim order staying the invocation or encashment thereof.

"However, reconciliation of accounts will be required to determine as to what will be the component of the advance bank guarantees recoverable by the company. There are no pleadings as to what exactly is the amount recoverable. Accordingly, insofar as the advance bank guarantees are concerned, this court is of the opinion that the amount recoverable by the Company ought to be ascertained," the court order read.

Justice Prathiba Singh has directed that the amount of only the Advance Bank Guarantees which have been invoked, upon being encashed, shall be placed in a separate `Joint Account’ which shall be jointly held by the Contractor and the Company. The parties are directed to reconcile the accounts, including payment of any invoices already raised and upon reconciliation as to the unrecovered portion of the advance amount which the Company is entitled to retain, in terms of the clauses in the contract, they may instruct the bank to release the said amounts in favour of the Company.

“The remaining amounts be released to the Contractor. If the parties are unable to reconcile the same, they are free to approach the Arbitral Tribunal under Section 17 of the Act. The `Joint Account’ as directed, shall be opened within three days and the amounts of the Advance Bank Guarantees shall be directly deposited in the said account. The reconciliation process shall be completed in two weeks.Accordingly, the ad-interim order dated 20th April, 2020 (as modified on 24th April 2020), stands vacated in the above terms." The order added.

Senior advocate Gopal Subramanium appearing for Halliburton submitted that there is no compelling reason to dissolve the injunction already granted by the ld. Single Judge. The contract already stands terminated and the arbitration clause has also been invoked. The Contractor has also sought waiver of the liquidated damages owing to the various defaults by the Company. According to the Contractor, a substantial part of the Project stands executed and only 3-5% of the Project work remains outstanding. Thus, there are no justified reasons for invoking the Bank Guarantees.

It was further argued by him that the contractor had been giving the continuous progress reports or the work carried out in the three fields.

Senior advocate Harish Salve appearing for the Vedanta submitted that at the outset the law relating to Bank Guarantees is very well settled.

“The Bank Guarantees are independent contracts which are not subservient to the main contract. The standard that would be applied in such cases is whether the invocation is liable to be stayed on the ground of egregious fraud or special equities. A perusal of the Bank Guarantees shows that the same are completely unconditional and they are not connected in any manner with any dispute in respect of the underlying contract. The Bank Guarantees have been issued in terms of Clause 9 of the Contract in order to secure the advance payments and for effective performance of the contract. Thus, no restraint order ought to be granted." He argued.

In 2018, pursuant to a global tender, the petitioner was granted a contract by Vedanta for the integrated development of Mangala, Bhagyam and Aiswarya oil and gas fields in Rajasthan for which the Petitioner had furnished various bank guarantees. Finally, however, as per the agreement between parties, the deadline for conclusion of the entire work was agreed as 31st March 2020.

However, on 18th March 2020, the Contractor invoked the Force Majeure clause and sought further time to complete the Project. This was however not acceptable to the Company, which on 31 March 2020 and again on 7th April 2020 invoked Clause 11 proposing termination of the contract and threatened consequential action including invocation of the Bank Guarantees. An ad-interim order was passed on 20 April restraining invocation and encashment of certain Bank Guarantees.

Subscribe to newsletters

* Enter a valid email
* Thank you for subscribing to our newsletter.