The Delhi High Court in Halliburton Offshore Services Inc. v. Vedanta Ltd. has passed a detailed order dated 20.04.2020 granting interim relief to a party seeking restraint on the invocation and encashment of an unconditional bank guarantee. The Court was tasked to resolve a dispute initiated under Section 9 of the Arbitration and Conciliation Act, 1996 wherein the petitioner sought relief on the ground of “special equities” by highlighting the suspension of all industrial activities in light of the COVID-19 pandemic.
The Court granted interim relief to the petitioner by interpreting the jurisprudence of the Supreme Court on the scope of judicial interference concerning the invocation, or encashment of unconditional bank guarantees. Pertinently, the Court analysed the decisions of the Supreme Court in U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd., Svenska Handelsbanken v. Indian Charge Chrome, Himadri Chemicals Industries Ltd. v. Coal Tar Refining Co. and Standard Chartered Bank Ltd. v. Heavy Engineering Corporation Ltd. amongst others to grant relief to the petitioner.
The Supreme Court’s Jurisprudence
The Court in Halliburton Offshore Services Inc. had to place reliance upon a catena of Supreme Court judgments to interpret the scope and extent of judicial intervention in light of the COVID-19 pandemic.
The Court placed reliance on a 1988 decision of the Supreme Court in U.P. Cooperative Federation Ltd. which identified special equities as a prima facie ground that would prevent irretrievable injustice between the parties. Furthermore, reliance was placed on a 1994 Supreme Court decision in Svenska Handelsbanken  which clarified that irretrievable injustice would include irretrievable injury as conceptualised by a United States District Court decision in Itek Corporation v. First National Bank of Boston.
The ratio embodied by the Supreme Court in Itek Corporation was clarified in a 1997 Supreme Court decision of U.P. State Sugar Corporation v. Sumac International Ltd. wherein it was held that to avail of the exception of irreparable harm or injury, the party seeking relief would necessarily have to show exceptional circumstances which would make it impossible for the guarantor to reimburse himself in the event of succeeding in the main dispute. In other words, a case of irretrievable injury and/or irreparable harm would have to be made out.
Now, the threshold for special equities was further analysed by a 2007 decision of the Supreme Court in Himadri Chemicals Industries Ltd. which allowed the Supreme Court to once again lay down principles that would govern judicial intervention in granting injunctions for invoking unconditional bank guarantees. The Court laid down six principles for justifying judicial intervention and the most pertinent of which is:
“…(vi) Allowing encashment of an unconditional bank guarantee or a letter of credit would result in irretrievable harm or injustice to one of the parties concerned.”
The principles laid down in Himadri Chemicals Industries Ltd. were once again relied upon in the 2016 Supreme Court decision of Gujarat Maritime Board v. Larsen and Toubro Infrastructure Development Projects Ltd.
We now move to a recent 2019 decision of the Supreme Court in Standard Chartered  where once again the Court analysed the settled principles of judicial intervention as laid down in Himadri Chemicals Industries Ltd. However, pertinently, the Court in Standard Chartered held that: (SCC Online para 23)
“23…. There are, however, exceptions to this rule when there is a clear case of fraud, irretrievable injustice or special equities.”
A plain reading of the holding of Standard Chartered Bank Ltd. would indicate that the principles of special equities which cause irretrievable harm or justice are preserved. In other words, a circumstance necessitating special equities must be followed by the causation of irretrievable justice.
The Delhi High Court’s Analysis
The Delhi High Court in Halliburton Offshore Services Inc. has sought to alter the intent and scope of the Supreme Court’s decision in Standard Chartered Bank Ltd. by specifically holding that the Supreme Court in fact visualised irretrievable justice, and special equities, as distinct circumstances and therefore a presence of either would justify an order of injunction. Pertinently, the Court has held that:
“18. …All that is required to be seen is, therefore, whether “special equities” can be said to exist, as would justify grant of the relief sought by the petitioner.”
Now, in terms of the factual analysis in Halliburton Offshore Services Inc. the Court has in fact granted relief by relying upon both elements i.e. a circumstance necessitating special equities and the cause of irretrievable harm and injury. In this regard the Court has held that:
“21. .. At the same time, if no interim protection is granted at this juncture, and the bank guarantees are allowed to be encashed, even while the lockdown is in place, in my view, the injury and prejudice that would result to the petitioner merits being categorized as irretrievable, even if, as Dr. Singhvi would suggest, the petitioner may still be able to recover the amounts, were it to succeed, finally, in arbitration.”
Therefore, we eventually see the Court applying both the elements of special equities and irretrievable harm and injury. Therefore, we see a strategic shift of the Court’s analysis which holds that COVID-19 by itself necessitates the need for special equities but then decides the dispute by establishing a causal link of irretrievable harm as well.
Pertinently, the Court does not engage with the submission of the contesting party that the petitioner is open to securing relief and recovery of the encashed bank guarantee through arbitration proceedings. In a rejection of this argument, the Court focuses on the unique nature of COVID-19 pandemic as a peculiar circumstance which necessitates judicial intervention in the interest of justice.
Therefore, the interim order of the Court leaves us with an ambiguous interpretation of the Supreme Court’s decision in Standard Chartered Bank Ltd. which is the latest authority on the scope of judicial intervention in restraining an invocation of unconditional bank guarantees.
Therefore, the interim order of the Court in Halliburton Offshore Services Inc. is open to scrutiny and challenge as its reasoning stems from an unordinary reading of the Supreme Court’s jurisprudence with specific reference to the decision of Standard Chartered Bank Ltd. The Court’s order may spark ambiguity with respect to special equities as a ground to intervene and restrain an invocation of an unconditional bank guarantee.
*The author is a practicing advocate at the Supreme Court of India, Delhi High Court and various tribunals including the NCLT and NCLAT. He is currently practicing as a Counsel with Chamber 20A of the Supreme Court of India. He has read law at Jindal Global Law School. The author can be reached via e-mail on email@example.com and via LinkedIn on www.linkedin.com/in/jaideep-khanna-221b9018a.
 566 Fed Supp 1210