Covid-19: Several Steel Importers Denied Force Majeure Protection By Bombay High Court

Steel products’ importers cannot use the force majeure argument to prevent the bank from encashing the letters of credit, the Bombay High Court held on Saturday.

Several steel importers contended before the court that their contracts with South Korea-based Hyundai Corp and GS Global stood terminated as unenforceable on account of frustration, impossibility and impracticability. Due to the virus-related lockdown declared by the central government they could not receive the steel product shipments, the importers argued.

Hence, they moved the Bombay High Court seeking to restrain bank Wells Fargo from negotiating/encashing letters of credit. These letters of credit were to stand guarantee in case the purchasers did not make payment for goods.

The court however declined this plea for urgent relief.

In his order, Justice AA Sayeed, noted that letters of credit are an independent transaction with the bank; and the underlying dispute between the importers and South Korean sellers doesn’t concern the bank. The force majeure clause in the contracts is applicable only to the South Korean exporters, and cannot come to the aid of the importers, the order pointed out.

The court also noted that the steel products have already been shipped from South Korea and the failure of the importers to purchase the goods or the fact that they will suffer damages cannot be held against the exporters. Distribution of steel has been declared an essential service and there is no restriction on its import and export, the court noted.

‘’In any event, the lockdown would be for a limited period and the lockdown cannot come to the rescue of the petitioners [steel products’ importers] so as to resile from its contractual obligations with the Respondent No. 1 [South Korean exporters] of making payments.’’ said the Bombay High Court in its order.

The case will now come up for hearing as per the regular listing procedure.