Recently, the Bombay High Court in the case of Standard Retail Pvt Ltd v/s M/s Global Corp & Ors (along with various tagged matters) has passed an Order refusing to grant ad- interim reliefs (under Section 9 of the Arbitration and Conciliation Act 1996) to Importers seeking to restrain a Bank from negotiating and/or encashing Letter of Credits issued in respect of certain international sale purchase contracts for steel, on account of COVID – 19 and the ongoing nationwide lockdown.
The Petitioners as importers had executed various contracts with sellers in South Korea for purchase of steel on CFR terms. The sale purchase contracts between the parties, contained a “Force Majeure” clause inter alia empowering the Seller to terminate the contract or delay contractual performance for a reasonable time on the occurrence of an Act of God (including but not limited to earthquake, epidemic, etc), war and any other similar cause beyond the control of the Seller., It was the case of the Petitioners/importers that on account of COVID – 19 and the prevalent nationwide lockdown its sale purchase contracts were rendered unenforceable “on account of frustration, impossibility and impracticability”. The Petitioners / importers placed reliance on Section 56 of the Indian Contract Act, 1872, which deals with frustration of contracts. While the shipments were already shipped from South Korea, the Petitioners / importers attempted to draw on the present lockdown to inter alia seek an ad-interim relief restraining the Bank from negotiating and/or encashing the Letters of Credit issued in respect of the same.
The Court while considering the Interim Application held the following:
1. The Letters of Credit with the Bank were independent transactions, separate from the underlying transaction/dispute between the Petitioners i.e. Buyers and the Seller. Further the Force Majeure Clause (in the contract between the Petitioners i.e. Buyers and the Sellers) was available only to the “Seller” and not the Petitioners.
2. The fact that the Petitioners were unable to perform their obligation with respect to their own purchases and were likely to suffer loss was not factor to be considered against the Seller. The Court while taking cognizance of the Notifications/Advisories issued by the Directorate General of Shipping, Ministry of Shipping presently there is no restriction on the movement and distribution of steel as the same has been classified as an “essential service”, furthermore, port and all port related activity have been similarly classified.
3. The lockdown would be for a limited period and the same cannot excuse the Petitioners form their contractual payment obligations to the Seller.
The Bombay HC Order, sheds light on the approach of the Court while dealing with contractual payment obligations in the realm of COVID – 19, wherein mere difficulty of performance or loss cannot be the ground for a party to claim frustration of contract, thereby seeking discharge of its contractual obligations. We would also like to highlight that the Notifications/Advisories issued by the Directorate General of Shipping, Ministry of Shipping notifying shipment of goods as an essential service would not assist a party in claiming frustration of contract.