Steel Importers want LC on Korean Exporters Cancelled but BHC Says No

“Force Majeure” Clause in Contract doesn’t Help, Condition only to Help Exporters

The Bombay High Court dismissed the appeals filed by Steel importers under section 9 of the Arbitration and Conciliation Act seeking directions to restrain the encashment of letter of credit by Korean Based Steel Exporters.

Steel Importers namely Standard Retail Pvt. Ltd., Integral Industries Pvt. Ltd., Vinayaga Marine Petro Ltd. & Anr, Hariyana International Pvt. Ltd and Prabhat Steel Traders Pvt. Ltd invoked “Force Majeure” clause in their contracts with the Korean Based Steel Exporters namely M/s Global Corp. & M/s Hyundai Corporation, stating that in view of the COVID-19 Pandemic and the lockdown declared by the Central/State Government its contracts stands terminated as unenforceable on account of frustration, impossibility and impracticability.

Under the contracts the Steel Exporters which has its head office at South Korea was to supply certain steel products, the shipment of which were to be dispatched from South Korea, to the Petitioners at Mumbai. The contracts were subject to the General Terms and Conditions, including clauses “Force majeure” and “Governing Law and Arbitration”. The petitioner invoked clause “Force Majeure” and seeks interim relief by restraining the respondents/Korean Based Steel Exporters bank in encashing the letter of credit.

A single Judge bench of Justice A. A. Sayed heard the petitions filed by Steel Importers has made an observation stating that the Letters of Credit are an independent transaction with the Bank and the Bank is not concerned with underlying disputes between the Petitioners who are buyers and the Respondents, who is the seller.

“The contract terms are on Cost and Freight basis (CFR) and the Respondent No. 1/Steel Exporters has complied with its obligations and performed its part of the contracts and the goods have been already shipped from South Korea. The fact that the Petitioners would not be able to perform its obligations so far as its own purchasers are concerned and/or it would suffer damages, is not a factor which can be considered and held against the Respondent No. 1,” held by the court.

The Court also mentioned that the Government notifications/ Advisories issued declares the distribution of Steel as an essential service and there are no restrictions on its movement in all ports and port related activities including the movement of vehicles and manpower, operations of Container Freight Station and warehouses and offices of Custom Houses Agents have also been declared as essential services.

The court further relied on the notification issued by the Director General of shipping which states that there would be no container detention charges on import and export shipments during the lockdown period. It added further that the lockdown cannot come to the rescue of the Petitioners so as to resile from its contractual obligations with the Respondent No. 1 of making payments.

Therefore, the court rejected the petition stating that the “Force Majeure” clause in the aforesaid contracts is applicable only to the Respondent No. 1 and cannot come to the aid of the Petitioners.