The Rights of the Deceased: Moral Rights Incidental to Copyright Law
- Vanshika Agrawal
- 2024-04-25
A bank guarantee is a traditional method of guaranteeing the payment of money in commercial transactions. Because, under the guarantee, the beneficiary is entitle to pay the full amount of that guarantee. Within the scope of that guarantee, irrespective of any pending conflict between the individual. On whose behalf the guarantee was provided and the beneficiary. Since a bank guarantee constitutes an independent contract between the bank and the beneficiary. The terms of the contract are binding on both parties. Therefore, the invocation must comply with the terms of the promise. Or else the invocation will be bad in law in itself.
The COVID-19 pandemic disrupt supply chains across the globe and the situation was even worse by subsequent lockdowns. One can imagine a scenario where the seller has shipped the goods. But due to lockdown, the buyer is not able to take it from the port. In some of these cases, in their contracts, the buyer invokes force majeure clauses and approaches the courts to restrain the bank from honoring the guarantee. The important question here is, on account of the invocation of the Force Majeure Clause in the contract between parties, will the banks be restrain from honoring the bank guarantees? In this article, in the context of COVID-19, we will discuss the jurisprudence around bank guarantee and its effect on the contract between parties and judgments in the Indian context.
Contents hide
2 Invocation of Bank Guarantees
2.1 Covid-19 as aground for an injunction
2.3 Delhi HC ruled2.3.1 Case 2-
2.3.1.1 Furthermore, the Bombay High Court held these proposals:
Analysis of invocation of Bank Guarantee during Covid-19
There are two types of bank guarantees:
To decide what sort of guarantee it is, one needs to pay attention to the language of the guarantee. While some guarantees mention the words “unconditionally and irrevocably,” they describe those terms with a contingency or a circumstance where the underlying guarantee becomes cashable. In such cases, the bank guarantee in question will be treat as a Conditional bank guarantee. The warranty conditions are, therefore, extremely relevant.
Analysis of invocation of Bank Guarantee during Covid-19
On or before the expiry date of the guarantee, the beneficiary must invoke the bank guarantee. If no petition is receive by the Bank on or before the date of validity refer to above, the Bank is freed from its liability. The beneficiary must send a letter to the bank explaining the circumstances that led to the guarantee being encash.
A clear reading of the terms of a standard unconditional bank guarantee typically reflects that the guarantor undertakes to pay without demur, which makes the demand definitive and binding. Concerning the invocation and compliance of the bank guarantee, certain bank guarantees render the beneficiary the sole judge, leaving the decision of invocation to the utter discretion of that beneficiary. Without regard to the dispute relating to the main contract, the guarantor would pay and the court will be prohibited from conducting an investigation concerning the prima facie existence of the respective arguments of the litigating parties relating to the main dispute.
If the bank guarantee is conditional, the beneficiary does not have an unlimited right to invoke the guarantee and, in light of the facts of the case, the court may grant an injunction against the invocation of the guarantee. If a bank guarantee is a conditional guarantee, its invocation will have to be in full accordance with the terms under which the guarantee is issued.
The people and the global economy have been surprised by COVID-19. Large enterprises and industries have been shut down, trade agreements have been scrapped and high losses in this period have also been recorded all the time. The contractual obligations of the parties were also significantly impacted by the pandemic and Covid-19 was deemed to be a force majeure case except for particular equities. Most courts, however, have not yet agreed to issue a bank guarantee injunction solely on the grounds of the pandemic. We have seen a few cases in the Indian Courts discussing injunction on bank guarantee which are discussed below:
M/s Halliburton Offshore Services Inc. (Halliburton) v. Vedanta Limited and Anr. (Vedanta)
In this case, the petitioner, that is, to set up services that included oil wells, Haliburton offshore services entered into an agreement with Vedanta Ltd. As scheduled and specified in the contract, the petitioner nearly completed the project on time. But because of the emergence of COVID-19, a national lockdown was imposed, which also meant a full lockdown of industrial activities. Consequently, this culminated in the default of the plaintiff on his contractual commitments and the failure to complete the project at the agreed time. The respondent terminated the deal and invoked the confiscation of eight bank guarantees. The petitioner filed a petition under section 9 of the arbitration and conciliation act, 1996 for seeking an injunction against encashing the 8 bank guarantees.
The Delhi HC ruled in the petitioner’s favor and released an order for a temporary injunction against the 8 bank guarantees being encashed. The court held that the petitioners’ inability to meet contractual obligations was primarily due to the national lockdown due to the COVID-19 pandemic, which was prima facie in the form of force majeure. The Delhi HC relied on Standard Chartered Bank Heavy Limited vs. Heavy Engineering Company Limited judgment in the case and reiterated the theory that the exception of special equities is distinct from irretrievable damage and that it is possible to use ‘special equities’ as a basis for the award of an injunction.
In the Vedanta case judgment, the Court further explained that the mere existence of the Covid-19 pandemic and the national lockdown does not excuse any violation or non-performance of the contracts. Before lockdown, the actions of the parties will be measured concerning their results on their contracts and then the court will determine whether or not to issue an injunction.
Consequently, based on this portion of the decision, in the case of Indhirajth Power Private Limited vs UOI and Ors., the Delhi high court declined to issue an injunction against the issuance of bank guarantees. In this case, since April 2018, the petitioner has not complied with the contractual obligation on his part, which is to build and develop a mining project in Maharashtra. A 12-month extension was granted but they still did not comply with the conditions and finished the project. As a consequence, the court dismissed the injunction and found that the lockdown was merely a pretext. To preclude the plaintiff from invoking the issuance of bank guarantees.
Standard Retail Pvt. Ltd vs M/S G.S. Global Corp. and Others
In this case, the petitioners claimed that due to Lockdown and COVID-19. They could not fulfil their part of contractual obligations when the other party based in South Korea did the same. The Bombay High Court dismissed the claim and ruled in favour of the petitioner. And ruled that Covid-19 and subsequent Lockdown would not be consider as force majeure. In this case and ruled that Covid-19 and subsequent Lockdown would not be treat as force majeure in this case. According to section 9 of the Arbitration and Conciliation Act, 1996. Because:
Conclusion
Analysis of invocation of Bank Guarantee during Covid-19
Bank guarantees have become an important part of securing their huge investments and deals with major businessmen and industries. However, as seen from the review and case study in this article. It was not free from legal arguments about its existence and the injunction against issuing them. As seen from the research done in the article, they assist in the free flow of national and foreign trade. Many companies from various countries enter commercial contracts. With high stakes and bank guarantees are need to reduce the risks of their investments. As the courts have been weakening and not fixing their decisions. On one principle, the conditions of the exception are still not evident.
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