Court affirms that pre-defined contingencies must be met for invocation, appoints Justice Arun Mishra as Arbitrator.
In a significant ruling, the Delhi High Court has upheld an injunction preventing the National Highways Infrastructure Development Corporation Ltd. (NHIDCL) from invoking bank guarantees provided by Sadguru Engineers and Allied Services Pvt. Ltd. The Division Bench, comprising Justices Dinesh Mehta and Vinod Kumar, dismissed NHIDCL's appeal against a Single Judge's order dated February 24, 2026, which had restrained the corporation from encashing the bank guarantees.
The dispute arose from a contract awarded to Sadguru Engineers for the execution of a four-laning project on National Highway No. 37, Jorhat-Jhanji stretch. NHIDCL attempted to invoke the bank guarantees, totaling approximately Rs. 8.63 crores, citing the contractor's alleged failure to meet performance obligations. However, the court found that the bank guarantees, while appearing unconditional, contained specific contingencies related to contractual performance that had not been met.
The court noted that NHIDCL's claim for invocation was based on issues unrelated to the contractor's direct obligations under the contract, such as vendor dues and recovery of funds provided for mobilization. The judges emphasized that the invocation of bank guarantees must adhere to the conditions stipulated within the guarantees themselves.
Furthermore, the court appointed Hon'ble Justice Arun Mishra, a former Supreme Court judge, as the sole arbitrator to adjudicate the disputes between the parties. Both parties had agreed to this appointment to expedite the resolution process. The court also allowed Sadguru Engineers to seek interim relief under Section 17 of the Arbitration and Conciliation Act, 1996, through the arbitration proceedings.
The decision underscores the judiciary's commitment to ensuring that financial instruments like bank guarantees are invoked only in accordance with their terms, thereby maintaining the balance of equity and convenience.
Bottom line:-
Arbitration and Conciliation Act, 1996 - Bank guarantees - Nature of bank guarantees and conditions for invocation discussed - Bank guarantees labeled as unconditional may still have pre-defined contingencies that must exist before invocation.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 - Sections 9, 11, 37
