Engineering Projects India Limited vs Southern Railway & Anr.
- Court
- Delhi High Court
$~31
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ O.M.P.(I) (COMM.) 466/2025&I.A. 27797/2025
ENGINEERING PROJECTS INDIA LIMITED .....Petitioner
Through: Mr. Uttam Datt, Sr. Adv. with
Ms. Sonakshi Singh, Mr.
Kumar Bhaskar and Mr. Naman
Kumar, Advs.
versus
SOUTHERN RAILWAY & ANR. .....Respondents
Through: Mr. Premtosh K. Mishra, CGSC
along with Mr. Anubhav
Upadhyay, Adv.
CORAM:
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
O R D E R (ORAL)
% 23.07.2026
1. The present petition has been filed under Section 9 of the
1
Arbitration and Conciliation Act, 1996 seeking interim protection
against the invocation and encashment of three bank guarantees
furnished by the Petitioner in favour of Respondent No.1 in relation to
2
an Engineering, Procurement and ConstructionContract for the
redevelopment of Katpadi Railway Station.
2. The Petitioner principally seeks an order restraining Respondent
No.1 from invoking the following bank guarantees: (i) Performance
Bank Guarantee dated 06.10.2022 for a sum of Rs.9,87,97,388/-; (ii)
Mobilization Advance Bank Guarantee dated 23.03.2023 for a sum of
1
“the Act”, hereinafter
2
“EPC”, hereinafter
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Rs.18,11,28,544/-; and (iii) Additional Performance Bank Guarantee
dated 07.06.2024 for a sum of Rs.3,29,32,463/-.
3. The dispute arises from an EPC Agreement dated 16.11.2022
executed between the parties pursuant to a Letter of Acceptance dated
22.09.2022 issued by Respondent No.1 in favour of the Petitioner for
the redevelopment of Katpadi Railway Station. The contract
contemplated completion of the project within the stipulated
contractual period, against which the petitioner furnished the aforesaid
bank guarantees in terms of the contractual conditions. The
performance guarantee secured the due and faithful performance of
the contractual obligations, whereas the mobilization advance
guarantee secured repayment of the mobilization advance released by
Respondent No.1. Subsequently, upon revocation of an earlier
termination, the petitioner furnished an additional performance
security as a condition for reinstatement of the contract.
4. Disputes between the parties first arose during the execution of
the project, culminating in the termination of the contract by
Respondent No.1 on 05.03.2024. Aggrieved thereby and apprehending
invocation of the bank guarantees furnished under the contract, the
petitioner institutedO.M.P. (I) (COMM.) 79/2024 under Section 9 of
the Act, wherein this Court granted interim protection restraining
invocation of the then existing bank guarantees.
5. During the pendency of the said proceedings, negotiations were
undertaken between the parties. The earlier termination was revoked
by Respondent No.1 and the contract was reinstated. The petitioner, in
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terms of the understanding arrived at between the parties, withdrew
the earlier Section 9 petition, furnished an additional performance
bank guarantee and resumed execution of the works in accordance
with revised milestones mutually agreed upon between the parties.
6. However, disputes resurfaced thereafter. Respondent No.1 once
again issued notices alleging lack of progress in execution of the
project and ultimately terminated the contract on 12.08.2025.
Simultaneously, Respondent No.1 sought invocation of all the three
bank guarantees. This led to the second round of proceedings, wherein
the Petitioner once again approached this Court under Section 9 by
filing O.M.P. (I) (COMM.) 331/2025.
7. By an order dated 18.08.2025, this Court restrained invocation
of the bank guarantees. Subsequently, Respondent No.1 withdrew the
invocation letters before this Court and, on the basis of the said
statement, the aforesaid petition came to be disposed of as having
become infructuous.
8. The dispute, however, did not rest there, Respondent No.1
thereafter issued fresh invocation letters dated 03.11.2025 seeking
encashment of the very same bank guarantees. The Petitioner, submits
that such invocation was contrary to the earlier conduct of Respondent
No.1 as also contrary to the contractual understanding between the
parties, instituted the present petition, constituting the third round of
proceedings under Section 9 of the Act.
9. Therefore, this is the third round of Section 9 petition arisingout
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of the same cause of action relating to invocation of bank guarantee by
the Respondents.
10. Albeit, at the threshold of this third round of proceedings under
Section 9 of the Act, this Court, upon a prima facie appreciation of the
material placed before it, granted ad interim protection vide order
dated 07.11.2025, restrainingRespondent No.1 from invoking the bank
guarantees. he said protection was granted, inter alia, taking note of
the fact that the contractual period had not then expired and that the
stipulated date of completion of the project was 30.11.2025.
11. Prima facie , therefore, this Court was of the opinion that
invocation of the performance guarantees before expiry of the
contractual completion period required further examination.
12. It is not is dispute that subsequent to the passing of the aforesaid
interim order by this Court, dated 07.11.2025, the contractual period
has expired on 30.11.2025. It is also not been disputed that the parties
have not yet commenced arbitral proceedings and that the pre-arbitral
conciliation mechanism envisaged under the contract continues to
remain pending according to both the parties.
13. In these circumstances, the question which now arises is not as
to whether the ad interim order dated, 07.11.2025 was justified on the
facts then obtaining, but whether the Petitioner has made out any case
for continuation of the injunction restraining invocation of admittedly
unconditional bank guarantees pending commencement of arbitration.
The issue necessarily requires this Court to examine the settled
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principles governing judicial interference with invocation of
unconditional bank guarantees and whether the present case falls
within any of the recognized exceptions warranting such interference.
14. Learned Counsel for the Petitioner submits that the Petitioner
has been constrained to approach this Court for the third time solely
on account of the repeated attempts of Respondent No.1 trying to
invoke the very same bank guarantees despite the conduct of the
parties and the earlier proceedings before this Court.
15. Learned Counsel submits that although Respondent No.1 had
initially terminated the contract on 05.03.2024, the said termination
was subsequently revoked after negotiations between the parties.
Pursuant thereto, the Petitioner withdrew the earlier proceedings under
Section 9 of the Act, furnished an additional performance bank
guarantee as required by Respondent No.1 and resumed execution of
the works in accordance with the revised milestones agreed between
the parties.
16. Learned Counsel further submits that the dispute resolution
clause contained in the agreement mandates conciliation before
commencement of arbitration. In accordance with the contractual
mechanism, the Petitioner has already invoked the pre-arbitral
conciliation process and the same is presently pending. It is, therefore,
contended that the Petitioner cannot be faulted for non-
commencement of arbitral proceedings.
17. Thus, according to the learned Counsel for the Petitioner, the
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disputes relating to the validity of the termination, responsibility for
delay and entitlement to invoke the bank guarantees are all arbitrable
disputes which are required to be adjudicated in accordance with the
contractual dispute resolution mechanism. Until such adjudication,
Respondent No.1 ought not to be permitted to invoke the bank
guarantees.
18. Per Contra learned Counsel for the Respondent No.1 submits
that the present petition is a clear attempt to indefinitely restrain
invocation of admittedly unconditional bank guarantees despite the
Petitioner's persistent failure to fulfil its contractual obligations.
19. Learned Counsel submits that the interim order dated
07.11.2025 was passed when the contractual period had not expired.
However, admittedly, the contractual completion period expired on
30.11.2025 and the project remains incomplete. Consequently, the
very basis on which interim protection had been granted no longer
survives.
20. It is further submitted that the bank guarantees in question are
unconditional and irrevocable bank guarantees, obligating the issuing
bank to honour the demand upon invocation without reference to the
underlying contractual disputes.
21. Further, the pendency of conciliation cannot furnish a ground
for continuing an injunction against invocation of unconditional bank
guarantees.
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22. It is accordingly prayed that the interim order dated 07.11.2025
deserves to be vacated and the present petition dismissed.
23. I have heard submissions made by both the parties and have
pursued the materials on record.
24. At the outset, it is necessary to delineate the limited scope of the
present proceedings. The Court, while exercising jurisdiction under
Section 9 of the Act, is not required to adjudicate the merits of the
disputes arising out of the underlying contract.
25. Questions relating to the legality of termination, responsibility
for delay, entitlement to extension of time, breaches allegedly
committed by either party and the consequent monetary claims are all
matters which fall within the domain of the arbitral tribunal and
cannot be conclusively determined in proceedings under Section 9 of
the Act.
26. The controversy before this Court is considerably narrower. The
sole issue requiring consideration is whether the Petitioner has made
out a case for continuation of the interim injunction restraining
invocation of the three bank guarantees.
27. The jurisprudence governing judicial interference with the
invocation of bank guarantees is no longer res integra . A bank
guarantee constitutes an independent and autonomous contract
between the issuing bank and the beneficiary, distinct from and
unaffected by the disputes arising under the underlying commercial
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transaction. The sanctity accorded to such instruments is founded
upon the imperative of preserving certainty, credibility and efficacy in
commercial dealings. It is for this reason that Courts have consistently
exercised considerable restraint while interfering with the invocation
of unconditional bank guarantees.
28. The Supreme Court, commencing from United Commercial
3
Bank v. Bank of India and subsequently in U.P. Cooperative
4
Federation Ltd. v. Singh Consultants & Engineers (P) Ltd. , has
consistently underscored that commitments undertaken by banks
under unconditional guarantees must ordinarily be honoured
irrespective of disputes subsisting between the contracting parties.
29. The mere existence of disputes under the principal contract,
allegations of breach, pendency of conciliation or arbitral proceedings,
claims for extension of time, or apprehended financial prejudice do
not, by themselves, constitute valid grounds to restrain the invocation
of an unconditional bank guarantee.
30. Judicial intervention is warranted only in exceptional
circumstances, namely where the invocation is vitiated by fraud of an
egregious nature going to the root of the transaction and of which the
beneficiary has knowledge, or where permitting encashment would
result in irretrievable injustice or irreparable harm of such an
exceptional nature that restitution would become impossible. Save and
except these limited exceptions, the beneficiary remains entitled to
3
(1981) 2 SCC 766
4
(1988) 1 SCC 174
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realise the bank guarantee strictly in accordance with its terms.
31. Tested on the touchstone of the aforesaid principles, this Court
is unable to persuade itself to continue the injunction granted on
07.11.2025.
32. The interim protection granted by this Court was admittedly
upon a prima facie consideration of the material then available.
Significantly, at that point in time, the contractual completion period
had not expired and this Court was persuaded to examine whether
invocation of the bank guarantees before expiry of the stipulated
contractual period warranted interim protection.
33. However, subsequent events cannot be ignored. It is an
admitted position before this Court that the contractual completion
period expired on 30.11.2025. Equally, it is not disputed that the
project has not been completed and the contract presently stands
terminated. The factual foundation on which the interim protection
came to be granted has thus undergone a material change.
34. The Petitioner has sought to justify continuation of the
injunction by referring to the pendency of the contractual conciliation
mechanism and by contending that arbitral proceedings cannot
commence until completion of the said process.
35. This submission, according to me, cannot be accepted. The
existence or pendency of a contractual conciliation process cannot
enlarge the scope of judicial interference with unconditional bank
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guarantees. At best, such pendency may explain why arbitration has
not yet commenced. It cannot, however, operate as a ground for
indefinitely restraining invocation of bank guarantees which are
otherwise unconditional and payable on demand.
36. In the National Thermal Power Corporation Ltd v.
5
FlowmorePvt. Ltd. , the Supreme Court held that even pendency of
arbitration between the parties does not, by itself, justify restraining
encashment of an unconditional bank guarantee.
37. It is also pertinent to note that none of the recognised
exceptions governing interference with unconditional bank guarantees
have been established in the present case. There is neither any
pleading nor any material demonstrating fraud of the egregious nature
as contemplated in the aforesaid decisions of the Supreme Court.
Equally absent is any material to demonstrate irretrievable injustice or
irreparable harm of such an exceptional character that restitution
would become impossible even if the petitioner ultimately succeeds
before the arbitral tribunal.
38. It is also deserved to be noted at the outset that the Petitioner is
also not disputing the fact to the extent as to the existence of an
unconditional bank guarantee.
39. This Court is therefore of the considered view that continuation
of the interim injunction would amount to defeating the very
commercial purpose for which unconditional bank guarantees are
5
(1995) 4 SCC 515
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furnished. Such an approach would run contrary to the consistent line
of authority of the Supreme Court.
40. This Court hastens to clarify that the observations made herein
are confined solely to the question of interim protection against
invocation of the bank guarantees. Nothing contained in the present
judgment shall be construed as an expression of opinion on the
legality of any other disputes pertaining between the parties.
41. In view of the aforesaid discussion, this Court is of the
considered opinion that the Petitioner has failed to establish any
ground warranting continuation of the interim protection granted by
this Court on 07.11.2025.
42. Consequently, the interim order dated 07.11.2025 stands
vacated.
43. For all the aforesaid reasons, the present petition under Section
9 of the Act, is also accordingly dismissed.
44. Pending applications, if any, also stand disposed of.
45. No order as to costs.
OM PRAKASH SHUKLA, J
JULY 23, 2026/pa
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