Indian steel importers cannot use force majeure declarations stemming from the Covid-19 outbreak to block letters of credit with South Korean suppliers, the Mumbai High Court said.
Contracts with South Korean steelmaker Hyundai Steel and trading firm GS Global for steel products shipped from South Korea are unenforceable “on account of frustration, impossibility and impracticability” during the pandemic and lockdowns in India, a group of importers said.
The importers asked the court to block US bank Wells Fargo from encashing letters of credit in a commercial arbitration petition. The court denied the request for immediate relief in an 11 April ruling, allowing it to proceed to an arbitration hearing.
The petitioners are Standard Retail, Integral Industries, Vinayaga Marine Petro, Hariyana International and Prabhat Steel Traders.
It is unclear whether Covid-19 disruptions will block imports, with India’s ports still open and steel operations considered an essential service, undercutting arguments that force majeure conditions are met, the court said.
“There are no restrictions on its movement and 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,” justice A A Sayed said.
The lockdown will be for a limited period so it cannot “rescue” the importers from their contractual obligations, he said.
The bank’s letters of credit are independent of the underlying disputes between parties, the contract terms are on a cfr basis and the sellers have performed their part of the contracts, with the steel already shipped from South Korea, he said.
The Asean hot-rolled coil (HRC) index has fallen by $136/t, or 26pc, to $384/t cfr Vietnam on 11 April since late January when the Covid-19 outbreak led to large-scale lockdowns. The South Korea-origin HRC differential jumped to a premium of $45/t to the Asean HRC index in early February from flat in January, and now stands at a $10/t premium to the Asean index.